GST on Real Estate Sector Deserves immediate attention

GST on Real Estate Sector Deserves immediate attention

1.1 Why RE sector deserves immediate attention?

RE sector and the Indian economy

• The real-estate sector is 2nd highest employment generator in India after agriculture sector (refer employmentnews.gov.in)

• RE sector is expected to contribute 13% of the country’s GDP by 2025 (refer ibef.org)

1.2 Why RE Sectors issues need immediate attention?

Due to Corona, numerous sectors are reeling under severe financial pressure!

Fear of job loss (in India as well as outside) is already looming and is expected to bring demand for RE to a new low!

Further, even existing RE bookings may see huge cancellation!

Additionally, due to Corona, the last couple of weeks have seen an exodus of construction workers!

1.3 Why RE Sectors issues need immediate attention?

This reverse migration of workers will stall the ongoing constructions for few quarters!

For the RE sector, Corona is a fourth major blow after demonetization, RERA, and GST!

2.1 Will GST tweaks help the RE sector?

In the last decade, from an indirect tax policy perspective, the RE sector has seen enough policy flip-flops.

Out of nowhere, in the year 2010, Service Tax was introduced on the sale of under-construction properties.

Later, in 2012, to remove cascading, input tax credit (ITC) on input services and capital goods was granted.

In 2017, with the introduction of GST in India, GST @ 12% was levied with full ITC.

2.2 Will GST tweaks help the RE sector?

Suddenly, in April 2019, the RE sector is detached from the ITC chain with proposed new effective rates of 1% on affordable houses, 5% for residential properties

Aforesaid multiple changes seem to undermine the fact that the RE sector is the second largest employment generator after agriculture.

Meanwhile, after Corona, like every other sector, RE is eagerly awaiting positive policy changes

2.3 Measures

Impact of Corona on the RE sector can’t be avoided

However, with appropriate GST measures, it can be lessened

3. GST rates for RE should be revisited!

3.1 Why RE buyers are made to pay taxes in the range of 16% to 18%?

RE sector is the only sector in India which is taxed thrice i.e. ‘input taxed supply’ (i.e. denial of credit of 6% to 7%) and ‘output taxed supply’ (GST @ 1% or 5%) and Stamp duty (@~7%)

Thus, an Indian home buyer is effectively made to pay approx. 16% to 18% in taxes!

These kinds of taxes are made applicable in spite of the fact that GST is levied on consumption whereas RE is an investment avenue and already stamp duty is levied thereon

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