The GST law has been made applicable with effect from 01.07.2017. However, it is seen sale of land, alcohol and Petroleum Products have been kept out of the GST law due to political compulsions. However, of late, it is being felt that Real Estate or sale of land can be brought under GST and some of the states like Delhi, Bihar and Jammu & Kashmir have already publically agreed in this regard. The Finance Minister has also given some hints in this direction in the recent past.
Presently, Real estate transactions can be classified into two parts from the GST perspective. One is the sale of land and the other is the land on which any building is either under construction or construction of the building is completed. The sale of land and the sale of building whose construction is already completed is beyond GST law as provided in para 5 of schedule iii. Only under-construction buildings are under GST when payment is received before issuance of completion certificate. The builder is eligible to take ITC only in respect of goods/services used in the supply of works contract service of construction, subsequent to the date of receipt of advance. Where the construction is done by the contractor, there is no issue of ITC, since the contractor is eligible to take credit from the beginning of construction.
However, once the Real Estate sector is under GST, the burden of tax will shift to the final consumer in the chain. The builder/developer would be able to take credit on tax paid on inputs/services used in construction of building irrespective of receipt of advance from the customer, since the GST would be shifted from the stage of supply of construction service to the stage of sale of property. Presently, if you construct a building for the purpose of supplying renting services, you cannot take credit of inputs/input services because of the bar incorporated in section 17(5)(c). Once the event of sale of immovable property is covered under GST, such restrictions will go.
To bring the Real Estate sector under GST, the stamp duty, transfer tax and registration duty on transfer of land or buildings will be abolished with the consent of the states and GST would be imposed on such event of sale of land/building. The constitution will be amended to bring out the entry regarding taxing of land/buildings out of state list and the same will have to be pushed into Concurrent list to enable to Parliament to legislate on the issue. The sale of land/building can be made as ‘deemed as supply of goods’ and such a provision can be made by amending schedule ii of the CGST Act. The rate of GST can be commensurate with the total incidence of tax including stamp duty etc.
The GST would be applicable on every deemed supply of land/buildings whether sale of new building or sale of old building like levy of GST on supply of 2nd hand goods.
As on date, the incidence of tax on transfer of title of land/building to the buyer is measured on the value (consideration paid) of the property which comes to 18% on an average. This is a cost to the customer and therefore, can become part of the GST without any problem. The customer can be allowed to take the input credit and he can be subjected to payment of GST when either further sale of the building is made or services related to real estate (like renting of property etc.) are supplied.
As discussed above, once the Real Estate is brought under GST, it will help the entire chain and the cost of construction will also be reduced.
However, the problem of corruption in the State land registration offices may not be over merely by bringing the real estate sector under GST. It is common knowledge that there is huge corruption involved in the transfer of title in all the states. I believe that simultaneously, this issue of corruption will also be attended to by the GST council. It must be ensured that once the GST is paid, the state authorities are duty bound to transfer land in the revenue records. Since the state would have received its entire payment of tax on sale of land or building, the transfer of title should be automatic without direct interface between the buyer and the authorities. If there is deviation or violation of local law, such issues can be sorted out at the state govt. level under a suitable executive/legal mechanism.
The GST council, which is scheduled to meet on 9th November, may also examine the following possibilities in this regard:
b) Can we develop software for every state to make a provision for online transfer of title and registration?
c) The brokers/advocates facilitating sale/purchase of land /building should be made answerable to the System.
Disclaimer: The views expressed in this article are strictly personal. The content of this document are solely for informational purpose. It doesn't constitute professional advice or recommendation. The Author does not accept any liabilities for any loss or damage of any kind arising out of information in this article and for any actions taken in reliance thereon.