One of the revolutionary monetary decisions taken by the ruling government since independence, the Goods and Service Tax was in offing for a long time. Yet, when the reforms finally came to pass, most of the affected parties were taken by surprise and did not know what the ruling implied. Real estate was amongst those affected directly. GST is essentially a single indirect- tax structure that is expected to make tax collection systems hassle-free all across the country. What does this imply for real estate developers in Pune? Well, the Union government has fixed an 18% GST rate for under-construction properties with full Input Tax Credits (ITC) for the real estate sector but excluding the cost of land. Given below is a detailed list of repercussions of this landmark economic decision.
- Real estate sector is to be taxed at 18%:
As per the revised orders from the government, the properties under construction will be charged at a rate of 18% with consists of 9% GST and 9% CGST. The government has also provided for deduction of land value equivalent one-third of the total amount charged by a developer, thus, pegging the effective tax rate as 12%. Experts say that this is in view the fact that imposing taxes on land would have resulted in land costs rising, further impacting the affordable housing agenda that the government is trying to push.
- Detailed returns need not be filed this year:
The industry experts argue that the government has agreed to take a lenient way forward as the new law was a big challenge on the compliance front, the government has agreed to take a lenient way forward to file the returns. It implies that the detailed return need not be filed by traders/businessmen only a summary return would be enough. However, the individual transactions will still have to be uploaded in the system.
- Initial problems in the implementation stages are unavoidable:
The multiplicity of taxes in the past tax reforms had created a lot of confusion and thus compliance with the current structure would be slightly difficult. The inflationary costs and short terms losses contribute to the same. However, past and the current implementations of GST have proven to be beneficial in the long run.
- Tax issues can be redressed hassle-free:
It would be far reaching to assume that all redressal issues will be solved due to the implementation of GST; however, some issues may be easier to address than others as there would be no overlap between state and centre with regards to the ruling. It is natural that new issues with regards to classification, composite and mixed supplies.