Bengaluru, November 25, 2015: The Indian real estate sector is expected to grow and touch $200 billion by 2020. For over last one decade, housing sector itself has had a 5-6 % consistent contribution towards Indian GDP along with being one of the primary contributors towards employment generation. This sector can be broadly classified into four sub-sectors; housing, commercial, hospitality and retail. As the country moves towards urbanisation, this sector’s growth will be well complemented and the demand for housing and commercial divisions is bound to move north. The much awaited Goods and Service Tax (GST) is to be tabled in the upcoming winter session of the parliament commencing from 26th November, 2015 and ending on 23rd December, 2015; and if implemented it can prove to be a real game changer if formed and executed in a planned manner. Apart from GST, Land acquisition bill and real estate bill will be two key bills to look out for.
Looking at how much growth it can bring towards the realty sector of our country, Mr. Deepak Kapoor, President CREDAI-Western U.P. & Director, Gulshan Homz avers “Implementation of GST will basically work on three major elements for this sector; simplification of tax structure, reduction in construction costs and better transparency. Speaking about its contribution post acceptance, we are predicting a nationwide realty sector growth by almost 15- 20 percent than projected in the course of next 5-7 years. There will be a quick reaction towards the sector by its customers as demand is bound to increase due to reducing costs and improving transparency in the sector that has been the hurdle making this sector suffer for long now”.
Simplification of Tax Structure
One of the major issues that GST can address is to present this sector with uniformity of tax practices. There have been countless instances where duplication and multiplication of taxes has somewhere dented the credibility of this sector. Presently, the realty sector has two key levies in the form of VAT and service tax, with overlay of tax base and continuous disagreements for the rate of tax, given the several options available for discharge of taxes across states. All these reasons have resulted in varied practices being followed by developers across different regions and within states. “With the dawn of concepts like hustling in service tax coupled with reductions and various mandatory charges collected by developers these days, highlights the importance of having a same tax base which can be only answered by GST. A single tax rate across the country will promote fair practices which will further encourage transparency and less evasion in the sector that supports in future growth of demand for real estate” states Mr. Ashok Gupta, CMD, Ajnara India Ltd. Adding to the view, Mr. Kushagr Ansal, Director, Ansal Housing says “Now days, there are developers and builders who are constructing projects in different states and thus have to abide by the state specific VAT laws, service tax and corresponding compliances. The presence of several indirect tax components faced by the developers at present are a major cause that bring tax inefficiency in this sector. Thus, the acceptance of GST will finally help in restricting these problems and create a simplified tax structure which can be followed by developers not worrying about which region or state they plan to construct and deliver at”.
Reducing the cost burden
Currently, the homebuyers of this sector are under the pressure of two forms of taxes; service tax and VAT on the purchase of residential units when booked prior to its completion. There are numerous components of non-creditable tax costs such as CST, entry tax, customs duty, excise duty, etc. which is duly paid by the developer on its procurement side which are basically ingredients for the cost pricing of the units. “All the non-creditable tax costs borne by the developer add upto almost 25 percent of the price of units. The proposed GST plan should replace these multiple taxes stinging the buyers through high cost price of units by a single tax thereby also ensuring smooth flow of funds through the chain. Thus, it is widely anticipated that inclusion of GST should either reduce the construction cost for the developer or if not reduce, then atleast help in maintaining the current price levels in the sector”, elucidates Mr. Ankit Aggarwal, CMD, Devika Group. Speaking on the other hand, Mr. Vikas Bhasin, MD of Saya Group does agree if the lower side of GST gets implemented then it will be a boom for the sector, but what if it’s the other way around. In that case he explains “There is no doubt that multiplication of taxes will be curbed through GST, but the only question will be what rate gets decided. The only dampener for this sector can be high GST rates, such as 27 percent GST that has been making the rounds as this will counterpoise any possible gains on incremental credits. Also, stamp duty is not proposed to be incorporated under GST and will thus continue to remain as it is at present. Therefore, decreased cost of construction will take place once a lower bracket of GST is applied as the developers will be liable to pay much less than today, thereby allowing cost of units to fall which will directly benefit the end users”.
What future it holds?
“The first and foremost decision has to be on a single GST structure as the situation may get further complex with states having power to notify differential SGST rate, as the present model indicates a separate tax rate schedule for both, centre and state levels, that is CGST and SGST respectively. In such cases, local developers will have a tough time in the middle and isolation is bound to happen for states opting higher tax bracket. Thus, realty markets for such regions will fumble if single GST structure is not made applicable”, illuminates Mr. Rupesh Gupta, Director, JM Housing. It has been correctly pointed out that a single GST will be the real need of hour in order to create smooth functioning of this sector. “A well-defined GST implemented for the country will bring about a relief for this sector and its customers. Commercial realty players will be hugely benefitted as all the lost Cenvat credit, which is in current regime a cost to commercial developer can be availed if GST is applied in a free flow manner that will also help in reducing costs. A much simplified single tax rate, reduced construction costs and better transparency in the sector will be much welcomed by the developers and its customers”, shares Mr. Mukesh Khurana, MD, Rudra Buildwell.
With increased limpidity and streamlined tax procedures, most small and mid-scale developers will also come into picture, as in order to control corruption; filtration process will make many developers visible. “In a nutshell, GST seems to be a benefactor for the realty sector, provided a single tax rate gets followed and increase in the margins moves into the hands of the developers. Now whether this benefit will be rightfully passed on to the customers will be a question remaining to be answered, as this sector is driven more by market dynamics than costing principles. Although, fair tax practices will pave way for greater transparency which will allow real estate transactions to form an integral part of the proposed GST design”, concludes Mr. Vikas Sahani, CMD, Property Guru.
Corporate Comm India(CCI Newswire)
