New GST rates may raise costs

MUMBAI: Real estate developers are concerned that the implementation of the goods and services tax (GST) may raise the overall cost of properties if the sector comes under the expected 18% tax slab and stamp duty is not subsumed in the new tax structure.

The GST Bill was cleared in Parliament’s budget session, paving the way for roll-out of the indirect tax regime on 1 July. According to the legislation, land leasing, renting of commercial properties and purchase of under-construction housing projects will attract GST.

It is speculated that for the real estate sector, the GST rate may be fixed at 18%. While VAT (value-added tax) and service tax that customers pay at the time of buying a property has been subsumed, stamp duty has been kept out of its purview—a move that most developers are worried may end up being a burden to the sector.

“As an industry norm, all taxes are subsumed under GST, but in the case of real estate, what they (government) are saying is stamp duty and other local body taxes will continue as it is. Taxation is going to be beyond reasonable,” said Niranjan Hiranandani, co-founder and managing director of Mumbai-based Hiranandani Group, who is also the president of real estate lobby group National Real Estate Development Council (Naredco).

Both Naredco and Confederation of Real Estate Developers’ Associations of India (Credai), another builders’ group, have recommended to the finance minister that the GST rate should not be kept higher than 12% for the real estate sector.

“The GST rate on the consideration excluding value of land should not be more than 12% covering both CGST (central GST) and SGST (state GST) after providing credit for all the inputs... Anything above this rate would only result in continued deceleration of this industry and also compromise GDP growth,” Credai said.

Prakash Challa, chairman (finance and taxation committee), Credai, said the group had sought an appointment with the finance minister to discuss the GST rate. According to him, the current net tax should be retained after the introduction of GST as well.