Top five Common Myths of GST in Real Estate
Debunked..!
By Mr.Ramesh Nair,
CEO & Country Head,
JLL India
The
Goods and Services Tax (GST)—India’s biggest tax reform
post-independence—was implemented on 1 July 2017. This new tax regime
seeks to transform
the Indian economy with its ‘One Nation, One Market, One Tax’ principle
by subsuming a host of indirect taxes charged at varied rates by the
Centre and states, therefore bringing uniformity in taxation across the
country.
Though
its primary objective was to simplify the complex tax structure on the
supply of goods and services, the reform created quite a stir due to its
complex nature, due to which many myths about GST started making the
rounds.
Let us Debunk some of these myths.
MYTH: GST has equal impact on all residential properties
FACT:
The impact of GST on property is mainly dependent
on segmental classification of projects. The extent of the impact on
residential properties predominantly depends on the phase of
construction, the location as well as the type of project. For example,
impact will be observed more in case of new launches as
compared to near completion projects. Similarly, suburban projects will
be more impacted as compared to city-centre projects and affordable or
value housing will see larger impact as compared to luxury housing. This
is on account of different proportion of
land cost in project cost (land cost exempted from GST), different GST
applicable to different materials, amount spent split in pre-GST time
and post-GST time and on account of lower GST for affordable housing
projects.
Thus there is no uniform or single amount by which residential properties are impacted due to GST system.
MYTH: Everything is clear about GST in real estate
FACT: There still persist certain grey areas which
are yet to be evaluated by tax experts to stand the ‘test of law’. Some of them are:
·
Taxability
of club house charges, electricity and water deposits, preferential
location charges, car park charges and eligibility
of one-third land deduction abatement on such charges. The authorities
could demand a full GST of 18% on these charges, given that the
one-third deduction may not be extended to these amounts
·
Taxability of land value where the same exceeds one-third of the total sale price and the developer has contracted separate
agreements for the supply of land and construction portion;
·
Ineligibility of refund to developers under the inverted duty structure considering inputs are procured at a higher rate of
tax, whereas output is charged at a lower tax rate.
·
Adopting different tax computation methods for different projects/phases of the same project.
MYTH: GST means price benefit for all the buyers
FACT:
There is a possibility of the
market perceiving GST to be a ‘by default’ agent for a price drop for
all projects. However, the actual factor for such price reduction is
based passing of cost savings achieved and this is just one of the
several factors influence the pricing and thus cannot
be by default expected as a price benefit agent.
For
example, customers opting for affordable housing projects are expected
to reap the maximum benefits whereas such benefits are expected to
reduce as the
segment moves towards luxury and ultra-luxury sectors. Similarly, in
projects where the land cost is low, the savings can be significant and
closer to the estimated savings. However, where the land cost is high,
the savings on account of GST may not be significant
MYTH: - Post GST taxation is lower than Pre-GST taxation for buyers
FACT:
The effective
rate of tax has not seen too much deviation. The earlier tax rate was
ranging from 10–15%. Now the tax rate has been pegged at 18%, with an
abatement of one-third being provided towards land value, thereby
reducing the effective tax rate to 12% of the entire
agreement value under GST. So while it may seem that GST should result
in savings of at least 3–4%; the ground-level reality is different and
depending on which state the buyer buy property in, there could be
positive or negative impact of GST as compared
to pre-GST taxation.
MYTH: Developers do not want to pass the benefit to buyers
FACT:
Quite the contrary,
developers do want to pass the benefit to end users as this would not
only attract more buyers, but also build trust for their brand. However,
the benefit not clear yet. In addition, the GST law requires businesses
to mandatorily pass on the benefit derived
from any reduction in the rate of tax or benefit from the input tax
credit to customers. However, with regard to the real estate sector the
industry is grappling to determine the actual benefit on account of GST
and there is lack of clarity on how the benefit,
if at all any has to be computed at all any, has to be computed (the
period to be considered, the factors to be considered, etc.). This is
because, in case of real estate, the product is unique. Unlike an FMCG
product, an apartment does not have an ‘MRP’,
or a ‘Best before’ date. Thus as the final price of a project is an
estimate for what the markets will be like for the next 4-5 years, it is
difficult for a developer to allocate benefits of input tax credit
today over various projects and build those into
a future price benefit for the customer. One of the biggest challenges
is the allocation of input tax credit to under construction projects,
where part of it has been completed before GST came to light.
To summarize, the GST law still has to mature and compliance related processes need to be refined further. It is important
that the government ensure clarifications to ensure major concerns, which need clarity once and for all are addressed.
About JLL India
JLL
is India’s premier and largest professional services firm specializing
in real estate. With estimated revenue
for FY 2017-18 expected to be ~INR 3,200 crores, the firm is growing
from strength to strength in India for over the past 20 years. JLL has
an extensive geographic footprint across 10 cities (Ahmedabad, Delhi,
Mumbai, Bengaluru, Pune, Chennai, Hyderabad, Kolkata,
Kochi and Coimbatore) and a staff strength of over 9,500. The firm
provides investors, developers, local corporates and multinational
companies with a comprehensive range of services. This includes
research, strategic advisory and consultancy, capital markets,
transaction management, project and development services, integrated
facilities management, property and asset management. These services
cover various asset classes such as commercial, residential, industrial,
retail, warehouse and logistics, hospitality,
healthcare, senior living and education.
JLL was recognised as one of the Best Places to Work in India 2017 in the annual survey of ‘India’s Best Companies
to Work For’ – a joint study conducted by Great Place to Work®
and The Economic Times. The firm has also been acknowledged as
‘Property Consultant of the Decade’ at the 10th CNBC-Awaaz Real Estate
Awards 2015 and the Best Property Consultancy in
India at the International Property Awards Asia Pacific 2016-17. For
further information, please visit
www.jll.co.in
No comments:
Post a Comment