Impact of GST on Real Estate Sector
By: – Atul Rathod
Goods and Services Tax – GST
Dated:- 4-10-2016
Impact of GST on Real Estate Sector:-
Background:-
Since the Model law of GST has come in public domain on 14.06.2016 and bill has been passed in Rajya Sabha and even expected to get effective from 01.04.2017. The purpose of this article is to give overview on impact of GST on Real Estate Sector due to change in Indirect tax structure. GST will play a major role in real estate sector as most of the purchases made by builder from unorganized persons, but in GST they need to purchase from organized persons.
This is 2nd in Series. (Impact of GST on various sectors)
Positive Impact:-
* One Tax: In Present structure of GST, there are various kinds of taxes such as Service tax, VAT, CST But in GST Regime there is only one tax i.e. GST however, there will be three parts such as CGST, SGST, IGST.
* Works Contract is deemed as “Supply of Service”: The major issues are i
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he department saying it is “works contract service” and not “Construction of residential complex service” or vice versa, whereas no such disputes is going to arise in GST. This will save litigation cost as part of the cases in litigation is around classification issues.
* No Cascading effect: In Current Regime of tax a builder is not eligible to take credit of CST on purchases made from interstate where as in GST the same is allowed as credit and there is no cascading effect to the extent of CST. However, Petrol & Diesel which is also key raw material of the Real estate has been kept out of the GST Regime, hence to the extent of the same cascading effect is going to be retain and the same will be added as cost. Further, there is no provision of exclusion of Property tax in GST Regime, may invoke basis fundamental of GST Regime.
* No Joint Charge In works contract service: In Present Regime of law, there is huge problems has been facing while calculating the liability where the part
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ake” unless it is contrary to law.
* No assessment by multiple tax authorities: Generally A Builder are facing many difficulties in handling the assessments done by the Separate authorities for VAT, Service Tax, CST, etc. In GST Regime it is expected that assessment will be done by one authority to the extent of limit of turnover, if the turnover exceed prescribed limit than assessment going to be done by another authority.
* Electronic Mode for Forms: In current Regime of tax there is very much manual filing of documents such as initial declaration and other forms but in GST Regime there will be less manual filing of documents and more through electronic mode. Further, the communication with department also could be through electronic mode.
* Compliance:-In GST Regime huge Compliance would be there however, it could be negative impact as well as positive.
Negative Impact
* Rate of tax: In current tax regime the consumer pays approximately 6% as Service tax and 5% as VAT which
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ereas in GST Regime all the free supplies given by Service receiver also must be included in Valuation for GST. Further, freebies given at the initial bookings also must be assessable to GST.
* Registration: Generally it is seen that Construction Company may have various sites in the country, in present regime he may take centralized registration and was adding the sites in registration certificate whereas in GST Regime construction company does not have any option and has to take registration in state wise which may increase the compliance cost.
* Reverse Charge on Goods: In Current Regime Of tax structure there was reverse charge on specified services but in case of GST even the reverse charge will be applicable on goods.
* Post supply Discount: If the Discount has to be given post supply than it must be known to both the parties at the time of supply or pre-supply and the proof of being known is the clause of discount must be there either in contract or agreement or offer etc.
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