Real Estate can be considered as a barometer of the ‘real’ health of an economy. The development of real estate not only creates direct and indirect employment but also aids growth in various ancillary industries. According to IBEF, the sector’s contribution is required to arrive at 13 percent of the Indian GDP by 2025.
The Covid outbreak has acquired new challenges for the sector, which was already experiencing liquidity issues, delay in development and possession, and growing stock. The pandemic has thrown new strategic dimensions. Work from home has become a reality in a span of few months, prompting an effect on the demand for commercial property, preference to won over the lease, upgraded digitization, sway on ‘walk to office’ vis-à-vis peripheral affordable location, etc
The real estate industry has seen a few changes in the taxation framework since the introduction of the GST regime in July 2017. Starting today, the sale of a ready property is outside the domain of GST, and an under-development property is charged at 1 percent (for moderate lodging) and 5 percent (other private) with any input tax credit. To reduce the impact of the cost of acquisition to the buyer, the reduction of 33 percent towards the estimation of land should be returned to, as in numerous urban areas the cost of land is fundamentally higher. This won’t just reduce the burden of tax on the purchaser yet will likewise guarantee that the sacredness of the fundamental principle to reject the offer of land from the domain of GST is kept up.
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 likelihood that such charges are liable to 5 percent as a component of the naturally bundled composite supply of development of complex services, to eliminate uncertainty and align the taxation practice in the business, the government can issue a circular to explain the issue. As of now, the adjustment (for example credit note) of GST paid in the past monetary year is permissible till September 30 of the subsequent year. By and large, development takes around four-six years, and thinking about the pandemic/liquidity and different variables, the purchaser may drop the booking.
In such cases, the refund of the GST already paid isn’t available if the cancellation is effected after September 30 quickly following the earlier year. Accordingly, there is a need to return to the limitation period to claim such adjustment. This amendment will assist homebuyers with looking for a refund of their hard-earned cash in case of cancellation. The sale of a completed property pulls in just stamp obligation, though the offer of an under-construction property draws in both GST and stamp obligation, leading to an increased cost to the consumer, whose only aim is to purchase a house. Subsequently, to address the issue of double taxation, the stamp duty should be subsumed in the GST system.
Furthermore, those constructing the commercial property for rent are grappling with the issue of denial of Input Tax Credit (ITC) for the construction of the building. While the Center has favored an appeal before the Supreme Court, the industry expects that the government grants ITC to keep up the value chain as cherished in the idea of GST.
The designer is needed to invert ITC with respect to apartments sold after completion. There is uncertainty regarding the way where such inversion is needed to be attempted: a) regardless of whether ITC for the period in which the flats were sold; or (b) whether ITC and turnover for the previous period when the ITC was availed is to be thought of.
On the off chance that ITC is to be considered for the period when the flat was sold, at that point the inversion sum could be generally little. An explanation by the government can bring more assurance on the tax treatment and reduce litigation.
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.
For more information, visit the website of All India ITR