business national
Demanding different brackets for tier-2 and tier-3 cities Kushagr
Ansal, Director, Ansal Housing said, “Rather than deciding some
exceptional tax brackets for markets like Mumbai and Delhi NCR,
there should considerations towards incorporating these brackets
for tier – 2 and tier – 3 cities as there are massive infrastructure
plans for them which are in the pipeline and various initiatives
like the Smart India Mission and Housing for All 2022 which will
ensure more benefit for the buyers which are being targeted
through these schemes.”
Batting in favour of the 12 percent tax regime for the real
estate sector Anuj Puri of the JLL India said, “A higher rate of 18
percent, however, could end up increasing the cost of homes,
especially in projects which are under construction, unless the
Government offers more clarity on the composition scheme
(i.e. abatements for cost of land) as well as on service tax and
value added tax (VAT) already paid by developers on underconstruction properties.” Puri said that under the service tax
regime, developers and home buyers can obtain benefits
under the abatement scheme. In the case of buying an underconstruction flat, an abatement of 75 percent was allowed,
subject to the flat being less than 2,000 sft and sold for less than
Rs 1 crore, taking the effective tax rate from 15 percent to 3.75
percent. If these two conditions are not met, the abatement was
reduced to 70 percent and the effective tax rate to be borne by
the home buyer increased to 4.5 percent.
As most houses in Mumbai are priced above INR 1 crore,
an end-user buying an under-construction apartment would
currently pay both service tax (4.5 percent) and VAT (1 percent
in Maharashtra, varies from state to state). Besides, there are
other taxes applicable such as excise duty, customs duty, central
sales tax, octroi, etc., which are paid by the developer during
procurement and passed on to the home buyer. Stamp duty,
which is payable on property transfers, will not be subsumed
into the GST.
“Now, assuming that the same rules of abatement apply
under the GST regime, properties under construction will attract
a tax rate of 4.5 percent (after 75 percent abatement on a tax
rate of 18 percent), which is the same as today. However, if the
abatement rules do not apply, the applicable tax rate would
shoot up drastically. Moreover, developers would have already
paid service tax and VAT for procurement of goods and services
for their properties currently under construction. Will they be
allowed to claim credits for input tax paid,” asked Puri of the JLL
India?
However, either 12 percent or 18 percent there are builders
who believe would be enough to scale down the realty prices in
India. Speculating prices of the house properties going down post
GST implementation, Vikash Bhagat, Director, Airwil Infra said,
“Either of the two remaining brackets would be both beneficial
for the sector as in the current scenario there are multiple taxes
and this cumulates to a much higher tax than the speculated 12
percent or 18 percent.” Bhagat said that there have been high
bids on the prices of properties going up post GST is implemented
but this might not be the scenario in real time. It might end up
reducing the major tax burdens on the real estate developers
hence resulting in the final prices going down.
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November 16-30, 2016 The Dayafter
49