IMPLICATION OF GST ON REAL ESTATE SECTOR

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Nandu Belani, Managing Director, Belani Group and President, CREDAI Bengal

Both as a real estate developer in Eastern India and on behalf of the members of CREDAI Bengal, I welcome the introduction of Goods and Services Tax (GST) which we believe is a major act of reform since it integrates all the Central and state taxes into one comprehensive tax regime across the country. Now that GST has been implemented, as developers, we are looking ahead to gauge the impact of GST on our segment and whether it will finally be able to reduce complexities in procedures under a consistent one tax regime and ensure a fair playing ground for both buyers and developers.

I have always reiterated that the real estate sector must be perceived in isolation as for other sectors GST is the total indirect tax liability while the GST rate fixed for real estate sector at 12 per cent is only a fraction of its tax burden. It does not eliminate multiple taxation for real estate sector like the state levied stamp duty which is about averaging from 5-8% of the value of immovable properties. Stamp duty in Kolkata is determined as per circle rates or arbitrary guidelines indicating the value of property which supersedes the actual transaction value. Thereafter the developer has to pay multiple charges like conversion charge on land, sanction fees and development charges that account for 4-5% of the sale value. With input costs set to rise with the rise in cement and steel prices due to GST implementation, developers are wary about the cost effective construction rate that can be offered to the buyers for upcoming or ongoing projects, resulting in passing on the applicable cost burden to the end consumers for their benefit.

The subject of an input credit in a real estate sector is contentious and needs amendment. Government thinks that under GST, the input credit for construction cost of materials will be passed on as benefit to buyers. Whereas that input credit benefit accounts for a very small sum as construction cost is a small percentage compared to land cost which is a prime raw material for real estate and occupies a greater percentage of the property. For any major real estate development within city limits where the cost of land is significantly high at nearly 60-70% of the total project cost, it will limit the capacity of developers to absorb the additional tax burden and benefit the buyers.

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