Skip to main content

REAL ESTATE UNDER GST: IMPACTS YOU NEED TO KNOW

Considered as one of the most pivotal sectors of the Indian economy, real estate sector is the largest employer in the economy coming only after agriculture sector. With an average of 5-6% contribution to the GDP at present, it is set to grow at a compounded annual growth rate of 30% in over the 10 years. 

Although real estate sector generates a staggering amount of revenue, it has been embroiled in disputes in the past years due to multiple taxations and ambiguity in provisions. Notorious for tax evasion and cash transactions, here is how GST will affect the real estate industry as a whole.

Simplification of Tax
• the most positive takeaway for consumers and investors is the emergence of a simple tax that applies to the overall of the purchase price.

The consumers and investors were hassled by the tax rates earlier as they were levied depending on the construction status of the property. While purchasing an under construction property attracted the payment of Vat, service tax, stamp duty, and registration charges, completed properties only paid stamp duty and registration charges as they were exempted from Vat and service tax.


The buyers will now pay a single indirect tax levied on under construction property’s value apart from stamp duty and registration charges. The completed projects will continue to be exempted from indirect tax. With the good and service tax (#GST) rate for under construction projects fixed at 12%, the benefits of investing in under-construction property will supersede the benefits the benefits of investing in the ready-to-move-in homes after inclusion of real estate under the GST.

Greater Transparency

• Significant amount of transparency and more regulated real estate sector
With a single GST rate, investors and buyers will know the actual amount they are paying. Previously, the taxes were under the complex structure of provisions and multiple taxes. Although the tax was levied, the invoice did not cover the parts of tax borne by raw materials and services. As the GST rate will be levied on the overall purchase price, the complications are reduced. The government has allowed deduction of land value equivalent to 1/3rd of the total amount charged by a developer. GST is expected to bring down the tax burden on buyers improving transparency in the process.

Stamp Duty and Property Tax will be Absorbed Eventually
Registration charges and stamp duty is payments that are outside the ambit of GST now. These will be levied by the state. Similarly, the property tax will also be outside the boundaries of GST as it is levied by the municipality. If GST is analyzed globally, there are higher chances that eventually all another form of payments will subsume into GST.

  • No Filing of Detailed Returns
    as it is a challenge to implement new laws – especially on compliance front, the detailed return is no required right from the beginning. This lenient view helps in easing out the transition.
  • Beneficial in Long Run and Global FrontReal estate will get relief from a multiplicity of tax rates and confusion but initial stages of GST implementation will not be easy. Pressurized conditions due to transition will have a short-term unfavorable impact during initial stages will make compliance difficult.
  • Redressal of taxation Issues will Become EasyThe inclusion of real estate under GST will make certain tax issues easier to handle. This ease will be due to lack of jurisdiction overlapping. Previously, Centre and state jurisdiction coincided with regards to levies of goods and services. Thus, seeking redressed of any tax issue was difficult. Under GST regime, it will become way easier than before.
  • Transition Period will require PatienceThe transition period will be difficult and will lead to ambiguity in transactions. This will occur in initial stages due complication in calculations but this will ease out after some time.
  • Unregistered Vendors StrainAs the tax liability has shifted from the provider of the goods and services to the one who receives it – if he/she is a registered person. Unregistered dealers will, however, attract a reverse charge.
  • Input Service Distributor ConceptISD or Input Service Distributor concept has been suggested for transferring the tax credit of input service between two or more locations. Any goods or service supplier will be considered an ISD and will be capable of transferring all types of GST. This will ensure optimal utilization of head office related credit in case of multiple state registrations. As a result, the actual cost will be reduced.

Requirements for Compliance

• Real estate needs to gear up to meet the increasing compliance requirement in GST era Assesses will have to file an annual return for each registered branch and warehouse on or before 31st December following the relevant following year. There is a mandatory audit requirement by a chartered accountant or cost accountant in case of turnover is over Rs.1 Cr. In this case, the annual return will need to be accompanied by a copy of audited annual accounts and reconciliation statement.


If you consider the challenges of new compliance for the real estate sector under GST, there is a growing need to bring appropriate changes to IT systems to become GST compliance ready. Automated compliance will offer a wide range of benefits which includes timely compliance, comparison of reports, report generation and decision making.

Labels:

Comments

Post a Comment

Popular posts from this blog

THE IMPACT ON AFFORDABLE HOUSING IN GST REGIME

  Measures for promoting affording housing “It is proposed to exempt service tax on construction of affordable houses up to 60 square meters under any scheme of the Central or State Government including PPP Schemes.”   After a prolonged demand from industry, the Central Government announced above incentive and vide Notification no. 9/2016 dated 01 st March 2016 came up with a scheme of exemption from service tax liability pertaining to low cost houses up to carpet area of 60 sq meters to be developed by private developers. Before any new project could have seen the light of day under new exemption notification, and start under the new scheme, there comes a GST from 1 st  of July 2017 whereby this exemption to affordable housing by private builders, from service tax stands omitted in the new list of exempted services approved by GST council. Thus the group housing projects proposed by private builders up to a carpet area of 60 square meters no longer qualify for exemption ...
Post a Comment
Read more

INTERNAL AUDIT

  WHAT IS INTERNAL AUDIT? Internal audit is an independent, objective assurance and consulting activity designed to add value to and improve an organization’s operations. The role of this audit is to provide independent assurance that an organisation’s risk management, governance and internal control processes are operating effectively. An internal audit may be used to assess an organization’s performance or the execution of a process against a number of standards, policies, metrics, or regulations. Internal audits  may include examining a business’s internal controls around corporate governance, accounting, financial reporting, and IT general controls. Auditors may cover all areas of an organization or specialize based on their skill-sets. In simple words we can say Internal audits evaluate a company’s internal controls. WHAT ARE THE TYPES OF INTERNAL AUDITS? Some types are: Compliance Audit IT Audit Operation Audit Performance Audit This allows the company’s Board and manag...
Post a Comment
Read more

HOW TO HANDLE THE TAX IN WHEN AVAILING SERVICES FROM UNAUTHORIZED SECTOR

  Understand the GST: Mechanisms- Two mechanisms are there: a) Fore-ward Charge b) Reverse Charge What is Fore-ward Charge Mechanism? Fore-ward charge means liability to pay the taxes on the goods & services is on the supplier. E.g.: X sells goods for Rs.1 Lac to A, X will charge & pay tax on the said goods (say 5% GST) Rs 5000. What is Reverse Charge Mechanism? Reverse charge means the liability to pay tax by the  recipient of supply of goods or services  or both instead of the supplier of goods or services or both. E.g.: Z sells goods for Rs.1 Lac to B, in this case B will pay tax on the said goods (say 5% GST) Rs 5000 on the basis of goods/services receipt. On which supplies Fore-ward/Reverse charge will apply? In case of goods right now no such goods has been notified yet particularly on which tax liability is be discharged by reverse charge mechanism. However, if the goods are bought by the registered person under GST is from the un-registered person then the...
Post a Comment
Read more