NEW DELHI: There seems to be no dull moment for the real estate sector under the goods and services tax (GST) regime.Just when the controversy over a rise in burden on projects nearing completion was settling down, the notification on rates generated fresh speculation, which government officers were quick to scotch.
While notifying the rates on Wednesday , the government pegged the GST on under-construction real estate at 18% that will be applicable on two-thirds of the value of the property .This will bring down the effective rate to 12% when calculated on the entire value, which was the rate announced last month after the crucial meeting of the GST Council. Therefore, the net tax incidence will remain at 12% of the selling price of a housing or real estate unit.
The discount of 33.33% on property value has been given against the land price. Land is an asset that is neither classified as goods, nor is it a service. In fact, there are court pronounce ments to this effect, and this has resulted in it being kept out of the GST regime, explained an officer. In the current regime when service tax was being levied on real estate, an abatement of 70% was allowed on the total value of the property to adjust against value of land and commodities used for the construction of a housing unit. In this way , buyers had to pay only service tax of 15% on 30% of the value of the property . Therefore, the net service tax rate of real estate was 4.5%.
However, this time, the government has not used the term abatement. Developers fear that the new method can be used to increase the tax without putting construction of houses in different slab of GST. However, real estate developers’ associations CREDAI and NAREDCO demanded that GST on construction of real estate should be kept at 12% with a reduction in the value of property prices for the land element by 33.33%. Officials told TOI that the actual incidence will indeed be 12%.
Source : http://timesofindia.indiatimes.com/business/india-business/gst-on-real-estate-at-12-govt/articleshow/59379413.cms