By:M.S.Yatnatti: Editor and Video Journalist Bengaluru:Reportedly Land aggregators are a significant part of the real estate industry. In its raw format, land originates to the aggregator where he adds value to the land with title reports, title clearances, property boundary, and registrations post which the land would be ready for sale.
GST was introduced last year to eliminate the complex tax structure in the country but unfortunately GST itself became controversial subject .Under GST, real estate business can be categorized into two parts. One is the sale of land and other is under-construction building. According to GST Act, sale of land and sale of building with occupancy certificate is beyond GST law as provided in para 5 of Schedule III. Pricing of real estate is driven by market forces and the end-consumer is expected to benefit from GST.
Reportedly present, sale of land and buildings with occupancy certificates have been kept out of GST but is expected to be taxed within a period of a year. Construction of building will benefit from the rates declared for cement, bric ks, and steel under GST. In GST, seamless credit is applicable to developers which were not available earlier.
According to GST, raw materials like cement, steel and construction costs have been stated as 'supply of services'. Therefore, the tax levied will be on the basis of actual raw material procurement. The developer exempts one-third of the total amount of the property as land value. Hence currently, there is no GST on sale of land.With regard to allowance of Input Tax Credit (ITC) when supplier does not declare his accounts, one of the conditions for availing ITC is that tax is to be paid by the supplier. ITC will be allowed to the buyer only when selling material from the supplier matches with materials bought by the contractor.
According to experts prior to GST, builders were not eligible for credit of excise duty, VAT, entry tax etc paid on materials and thus the materials were part of price of the construction undertaken. Post GST, the benefits of ITC i s made available against payment of GST at 12% liability and hence it will no longer be part of the cost.
Reportedly the Impact of RERA is visible in the real estate industry. RERA is India's first real estate regulatory act passed by the central government to bring about accountability and transparency in the real estate industry. Through RERA, the developers have to disclose property details, approval status, development plans and timelines for all ongoing projects and also register new project launches through an online portal.
With RERA coming into effect, home buyers have been showing interest in properties which are completed and ready-to-move-in. The transparency and regulations in RERA have aided the buyers in receiving the details about the plot, building plan and even the completion date of the project. Prior to RERA, customers had to bear the brunt of any project delays on account of multiple factors like approvals, procurements, delay in construction and changes in the project. Tim ely delivery of the projects, informing prospective buyers about minor addition or alteration, sharing and updating on project plan, government approvals, land title status are some of the compliances post implementation of RERA.
Experts believe during the past few years, the industry has seen many small and medium sized land aggregators entering residential and commercial development. Large developers have shown growth, whereas the small and medium aggregators continue land aggregation or merge with large real estate developers. This is due to increased compliances and consumer demands in the industry.
With regard to GST, the government of India is following a lessons learnt model, wherein an array of changes have been implemented, their impact monitored and modifications made, if necessary.
Momentum is also building for the inclusion of real estate within the ambit of GST, with several states backing Finance minister Arun Jaitley's sug gestion that the new indirect tax system is the answer to tax evasion and flow of unaccounted wealth within the sector. GST in real estate also requires further streamlining as additional levies like stamp duty and registration are still separately charged and should be included within a single tax structure. The GST council meeting on November 9, 2017 has not derived any simplification process and has postponed the decision to the next council meeting. According to the finance minister, there is a need to ensure that there is no evasion of tax and therefore a need for further discussion.
However, experts opinion is divided and few experts feel such a measure (bringing real estate under GST) would require an amendment to the Constitution. At present schedule seven of the constitution lists taxation of land and buildings as part of the state list.
Since the 1st of July 2017, leasing of land, renting of buildings as well as EMIs paid for purchase of under-construction houses have been attracting GST. Any lease, tenancy, easement, license to occupy land is considered as supply of service and hence comes under the central GST (CGST).
Implementation of GST was to get India under one tax regime and ease the process of doing business. Post implementation of GST, the real estate industry is expected to become more transparent. The availability of input credits will reduce project costs. GST for the country is good for the economy, but we hope stamp duty and registration gets subsumed within it and stamp duty and registration fees get abolished.