GST Reforms Essential for Real Estate Growth: IBEF

Real estate can be considered as a barometer of the ‘real’ health of an economy. The growth in real estate not only creates direct and indirect employment but also aids growth in various ancillary industries. As per IBEF, the sector’s contribution is expected to reach

BY Realty Plus
Published - Monday, 21 Dec, 2020

GST Reforms Essential for Real Estate Growth: IBEF

Real estate can be considered as a barometer of the ‘real’ health of an economy. The growth in real estate not only creates direct and indirect employment but also aids growth in various ancillary industries. As per IBEF, the sector’s contribution is expected to reach 13 percent of the Indian GDP by 2025. The real estate industry has seen several amendments in the taxation framework since the introduction of GST regime in July 2017. As of today, the sale of a ready property is outside the purview of GST and an under-construction property is taxed at 1 percent (for affordable housing) and 5 percent (other residential) without any input tax credit. To reduce impact of the cost of acquisition to the buyer, to abatement. 33 percent towards the value of lands needs to be revisited as the urban areas the cost of land is significantly higher. This will not only reduce the effective burden of tax on the buyer but will also ensure that the sanctity of the fundamental principle to exclude the sale of land from the purview of GST is maintained. There is an ambiguity in terms of the applicable rate (i.e. 5 percent or 18 percent) for certain charges (such as infrastructure development charges, provision of electricity and water, society formation, etc.) recovered by the developers. “While there is a possibility that such charges are liable to 5 percent as part of the naturally bundled composite supply of construction of complex services, to remove ambiguity and align the taxation practice in the industry, the government can issue a circular to clarify the issue. As the pandemic has reduced economic activity and has hit growth and sentiments, the government should consider and address the challenges faced by the real estate sector to support the growth momentum, which, in turn, can lead to economic recovery,” said Partner and Deputy Head of Indirect Taxes, KPMG in India, Santosh Sonar