What If Real Estate Is Brought Under GST?

India’s real estate industry could face its second big change in less than a year as the Goods and Services Tax Council will take up a proposal to bring it under the uniform nationwide levy.

Finance Minister Arun Jaitley said this week that there is a strong case to include real estate in the new indirect tax regime and that the GST Council will discuss it in November. That comes as the industry recovers after the new Real Estate Regulation And Development Act was rolled out to safeguard homebuyers’ interests.

The two key taxes on real estate transactions are stamp duty and registration, the rates of which vary between states. GST will make them uniform. Homebuyers already pay 12 percent GST on under-construction properties.

It’s not certain how the government will implement it, Santosh Dalvi, partner (indirect tax) at KPMG India, told BloombergQuint. “If entire real estate is brought under GST, they would have to abolish the stamp duty and we don’t know how the government plans to compensate the states for their loss.”

The current rate of stamp duty, registration and GST on under-construction homes comes to about 18 percent, he said. “So, it’s important to look at what rate it will be taxed at. We can then look at consumer prices.”

Agreed Bipin Sapra, partner (indirect tax), EY. “It’s going to be a test for the government.”

Also, developers pay taxes on raw materials. Like other businesses, they get input tax credit. GST taxes every stage of the business activity to improve compliance and compensates for it by allowing refunds.

“By including real estate under GST, builders can get a fair amount of input credit, helping bring down costs,” said Anuj Puri, chairman at Anarock Property Consultants. That would make homes cheaper for buyers, he said.

Sapra said it will depend on the tax rate applicable.

Real estate under GST ambit means consumers will only have to pay one “final tax”, said Niranjan Hiranandani, co-founder of Hiranandani Group and president at National Real Estate Development Council. RERA brings in transparency and GST should make it less of a burden in terms of taxes payable while buying the home, he said.

“Not only will this create positive sentiment but it should also boost actual sales.”

Watch the full discussion with Niranjan Hiranandani of the Hiranandani Group and MS Mani, partner at Deloitte on what implications for the real estate sector if it is brought under the ambit of GST.