The Goods and Service Tax is likely to eliminate the complexity in the tax structure and bridge the gap between the government, developers as well as the consumers. A rate of 18% GST has been fixed for under construction properties with complete Input Tax Credits for the sector, but this includes the cost of land. Here are 6 things you need to know about the GST on property:
- Real estate will be taxed at 18%: Under construction properties will be taxed at the rate of 18% which is 9% SGST and 9% CGST. Further, there is an allowance of deduction of the land value equivalent to one third of the total amount charged by the developer, which makes the effective rate as 12%. Under the new regime, the quantum of input tax credit will be higher although the overflow of credit will be restricted.
- Stamp duty and property tax to eventually be subsumed: The stamp duty as well as the registration charges is not under the ambit of GST now because these are levied by the state while property tax is a municipal levy. The Government says that it plans to eventually include these levies under GST, which will be done in the near future.
- Detailed returns need not be filed this year: The government has clarified that detailed returns are not required to be filed by the traders in this year. Only a summary return will be sufficient for the first couple of months. Although returns can be filed in summary, the individual transactions will have to be uploaded in the system.
- Teething issues inevitable: The teething issues and short term adverse impact will make it difficult to comply with the GST for the first one year. These are inevitable but in the long run, GST will be beneficial. Post implementation of GST, certain tax issues will become easier to handle since there will be no overlapping of jurisdiction between the levies by the Centre and the States. This makes seeking redressal of an issue far easier than before because the new law will apply to everyone.
- Transition period a pain for developers, consumers: Making transactions in the real estate sector in the transition period will lead to ambiguity on how the tax credit will be calculated. If an invoice has been made on the 1st July, how will the ITC calculations be arrived at?
- Unregistered vendors will be a headache: The liability to pay taxes has been shifted from the service provider to the service receiver, if he is a registered person.Any purchase of goods or services made from an unregistered dealer will lead to a reverse charge on the recipient, which will add to the compliance cost of the purchaser. Due to this, many corporates will not prefer purchases from unregistered dealers.
The Government is constantly trying to ensure that the transition is made easier and the businesses can adapt to the new tax regime. It will remain complex for a while now but it is expected that GST will be a smooth process in the future.