August 04, 2018

As many as 16 types of taxes got subsumed in the Goods and Services Tax (GST) in July 2017. However, stamp duty and registration charges continue to remain in force even today as the new tax regime completed one year on July 1st, 2018. The additional burden on the real estate sector by way of stamp duty averages 5%-10%. These rates are varying for different states. The sector represented by real estate bodies such as NAREDCO and CREDAI expect this tax to be abolished and included in GST. Stamp duty is a tax levied by state governments on property transactions and may vary for different areas. It is payable under Section 3 of the Indian Stamp Act, 1899.

Currently, under construction projects attract 12% GST which buyers have to pay on the total cost of the property. One pays 8% for buying in an affordable housing project but developers are not able to give this benefit to buyers due to lack of clarity on the input tax credit. Another 5-10% charges are paid by home buyers at the time of registration.

As of now, buyers fall in the double taxation system when they decide to buy in an under construction project. Many buyers are finding a way out to avoid this double taxation by buying into completed projects. New ways are being explored to avoid GST on projects owing to this double taxation system. Such practices can be curbed if multiplicity of taxes in the real estate sector is brought under the GST regime.

“At the current juncture, the sector definitely requires stronger measures to address some of the pertinent issues such as rationalisation of stamp duty, streamlining the approval process through single window clearance, according industry status to the sector etc, to bring the sector on the path of recovery,” feels Neeraj Bansal, Partner and Head - Building, Construction and Real Estate, KPMG, India.

The Tax burden is high on the real estate sector with an abatement of one-third being provided towards land value. According to Manju Yagnik, Vice-Chairman of a leading real estate company, “Despite input credit being passed on to the customer, with GST @ 12%, there is a marginal increase in the overall cost. This needs to be revised downwards, to benefit the consumer, leading to a further push in sales volumes. Over and above the high cost of land, GST and other taxes, the end consumer also pays 5% - 6% Stamp Duty on property purchases in a state like Maharashtra. The government must look at reducing this cost. Uniform stamp duty rates across the country is also required.”

As of now there is no consensus between the Central and State governments over stamp duty and registration charges getting merged into GST. NAREDCO has already recommended to the GST council to bring these taxes into GST as it will improve the sales of under construction properties.

Niranjan Hiranandani, President, NAREDCO, reinforces this point. “When it comes to stamp duty and registration, both are state subjects. Although there has been some talk in the GST Council about subsuming these into GST, it has still not been accepted by all states. Once all states come to a consensus and decide to do away with stamp duty and registration, the same will get subsumed into GST. The real estate industry, as indeed NAREDCO, look forward to this becoming a reality – and soon,” he said.

Surendra Hiranandani, CMD of one of the leading real estate organisations says that attention to stamp duty will further strengthen GST’s long-term impact. “It continues to remain in force even after GST implementation and the rates vary for different states. The additional burden on the sector on account of stamp duty averages 5%-7%. We hope that state governments abolish the same or merge with the existing GST rates which will further help bring down the cost of apartments.”

Every time a property transaction takes place, the buyer pays tax. Many homeowners, who are looking forward to upgrading their properties to take advantage of the lower prices currently, hesitate buying, even though they need bigger homes. It is a necessity rather than a luxury for such buyers. However, with stamp duty and registration charges the cost advantage is wiped away. GST can address these issues in the long run, if it subsumes stamp duty and registration charges.

The initial stage of GST brought many challenges. In the second year, it is expected that the government’s measures will achieve the desired objective of ‘One Nation One Tax’.

It is important that the GST council engages with stakeholders to address their concerns and work in harmony to bring more clarity for the real estate sector.

It can substantially contribute to the Government’s ‘Housing for All by 2022’ mission.

It is high time that a buyer-centric approach is adopted and a rational decision taken to cut down multiplicity of taxes in the real estate sector for end-users. Tax burden is keeping buyers away from the market and impacting the sector as well.

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Source: realty.economictimes.indiatimes.com