5 Ways In Which GST Bill May Transform Indian Realty

The Goods and Services Tax (GST) Bill, which is pending for an approval in the Rajya Sabha, was expected to be passed during the ongoing Monsoon Season of Parliament. However, as the ruling National Democratic Alliance (NDA) and the Opposition parties have disagreements on key pending legislations, the fate of the GST Bill is also in limbo. Some expect the Government to notify a short Session to pass the Bill. The Lok Sabha had passed the Bill in May 2015.

A look at how the Bill will impact the real estate sector, if passed:

• The Bill will make the taxes paid on transactions in the real estate sector uniform. The taxes paid and the methodology according to which taxes are levied on real estate transactions — especially service tax and value added tax (VAT) — vary widely among Indian states. Developers of the real estate in India, for instance, transfer the burden of paying taxes on the raw materials they purchase to home buyers. If the tax norms become uniform, home buyers would find it much easier because various taxes often form nearly a quarter of the cost of buying a home.

• At present, there are multiple taxes involved in real estate transactions. So, the paper work involved in the process is quite high. With uniform taxes, such procedures would become simpler, lowering the cost of construction.

• Lack of clarity on tax norms have often led to a huge number of legal battles. The tax norms, governing joint development agreements, raw materials and services involved in the construction process, are not always clear. With the GST Bill, the tax rate across states will be uniform.

•  The structure of indirect taxation is vague. It is possible that the GST Bill would transform how indirect taxes are levied on real estate transactions. This would make the process smoother, leading to greater flow of funds. 

• Uniform taxes would lower construction costs for developers, too. At present, they face problems in getting credit to build and lease out commercial properties. The GST Bill would make transactions in property in India more transparent.