GST – Simplifying Taxation in India’s Complex Residential Real Estate Sector

“One Nation, One Market, One Tax” was the driving principle behind the passing of the GST bill. GST has become one of the most revolutionary tax-reform India has seen in decades. It will almost certainly have a profound effect on the Indian economy; making it easier for businesses and retailers to comply and moderate overall taxation levels that will inevitably increase the collection of taxes. The real estate sector contributes to 5% of India’s GDP and is the second-largest employer in the country. However, indirect tax levies, such as VAT, service tax, excise, stamp duty and registration fees have been a significant hurdle in this sector. GST will simplify tax hurdles and minimize the scope for double taxation. This transparent way of taxation will benefit both the customer, industry and the tax collectors.

Under the ambit of GST, under-construction properties will be charged at 12%; this won’t include stamp duty and registration charges. Today different states impose different property taxes; GST will ensure the buyer pays one uniform rate across all states. To better understand the impact of GST on the real estate sector, let’s take a look at the current tax structure of some of India’s tier-1 cities.

	Bengaluru	Mumbai	Pune	Chennai	Gurugram
VAT	4.0%	1.0%	1.0%	2.0%	4.0%
Service Tax	4.5%	4.5%	4.5%	4.5%	4.5%
Stamp Duty	5.7%	5.0%	5.0%	7.0%	6.0%
Registration Charges	1.0%	1.0%	1.0%	1.0%	0.5%
Total Taxation	15.2%	11.5%	11.5%	14.5%	15.0%

The 12% rate on under-construction properties will likely bring down property rates. Developers will now be authorized to take input credits on the sale of property under construction against the taxes that are paid by the buyer. This will bring down the cost for the developers, and in-turn the developers will have to pass on this benefit to the customers. The anti-profiteering provision in the GST bill makes it mandatory for developers to pass on any tax benefits of GST to the customers.However, GST may not benefit luxury real estate. Top luxury apartments in Chennai, Mumbai, Bengaluru, Pune and other tier-1 cities are set to see a major increase in taxation as compared to affordable homes in the same locations because they aren’t given the full set-off in terms of the land component. As things stand, service tax is charged on 30% of the property value, but GST will be charged on the entire value of the property; making it increasingly taxing on luxury real estate. Notwithstanding the burden of taxation on premium furnishing, fittings, super quality of cement and other top-quality raw materials used in the luxury housing market will be significantly more than that used in the affordable housing segment.

The best possible advice for home-buyers and investors “is to wait”. Wait till the property rate on GST is finalized. Wait till the property rates on GST are finalized. At a time, when property prices are already not affordable in most suburbs, if the GST rate were to rise above 12%, the market will certainly take a hit. If you buy real estate when the markets are on the rise, it only benefits the builders. The right time to buy property is when the markets are down as this gives you the best rates, infinite choices, and loans with lower interest rates from banks.

This is a guest post by Dinesh Dhawde

How GST Implementation Would Be Helpful for Real Estate?

Why is the Goods and Services Tax (GST) a welcome change for realty? Read on if this topic piques your curiosity as a property developer or seller.

The Goods and Services Tax (GST) is an effort toward simplifying the process of taxation by bringing different types of taxes under one umbrella. As simple as it seems, the implementation of GST entails far-reaching effects across sectors. Real estate is indubitably part of this spectrum.

Real estate has evolved by leaps and bounds over the last 15 years and will continue this upward trend in the years to come. Properties have always been looked upon as a lucrative investment option. GST promises to reduce the cost of ownership if its rate is lower than the summation of all the existing taxes.

Tax management is a challenge in the dynamic domain of realty, as any property purchase transaction is governed by a number of indirect taxes such as Value Added Tax (VAT), stamp duty, and service tax. With GST, all indirect taxes pertaining to property deals would be absorbed into one large cover.

We are aware that the effects of GST implementation are not restricted to buyers; developers play a significant part in the story, as they are the ones who initiate projects. Be it procurement of land or a redevelopment project, taxes rule the roost at every stage of property development. In the current scenario, taxes are levied at two levels: center and state. The state taxes the goods and materials, and the center taxes the services. Such a taxation process adds to the complexity of real estate deals, and it is the end customer who bears the brunt of dual taxation. GST implementation promises to put an end to the woes faced by property buyers, as a uniform rate would make it easy for the buyers to interpret the nitty-gritty of property dealings. Even though buyers may need to pay a slightly higher price, GST is sure to simplify the process of compliance to a great extent.

What is the probable impact of GST on developers?

During the procurement of land, developers are required to pay a host of taxes, such as Central Sales Tax, Excise Duty, and Customs Duty. Developers’ expenditure on construction materials comes to be 20 to 25% higher owing to indirect taxes. If all these taxes were to be subsumed, the cost of procurement and development would drop. This would translate into reduced costs for the buyer, which would eventually lead to a boost in sales. However, the actual impact on property prices would be based on the final GST rate.

Given that interdependence is an industry norm, real estate has close relations with other sectors such as finance, IT, steel, and construction. Therefore, if any one industry was to benefit from GST implementation, all the related sectors would simultaneously reflect the positive impact.

Transparency is a major advantage of GST implementation; a unified tax structure makes tax calculation a more comprehensible process for not only the industry bigwigs but also the end customer. Tax evasion would reduce significantly after GST enforcement, as a unified structure leaves no room for manipulations.

How would GST influence the economy?

Considering the booming trend in realty, the contribution of this sector to India’s gross domestic product (GDP) would be 5%. GST itself is estimated to account for 2% of the country’s GDP. 

Is there any section that would not witness the impact of GST?

Indirect taxes are not levied on possession-ready property, so resale dealings would not be affected significantly by GST implementation. 

In conclusion, GST implementation would prove to be a boon for developers and buyers alike, provided the standard rate is low. Buying high-end luxury apartments in OMR, Chennai would no more be a distant dream, which is a good enough reason to cheer. 

This is a guest post by Pooja

Get the best revenue with real estate investment

We all wish to invest in avenues which give us better profit margins. But it is difficult to gauge them and finally invest. Investment is a matter of the right time you enter and the exact time to exit out as well. You need expertise for this kind of investment which comes only with experience. The best investment option available in the market today is the real estate. It is a booming industry and almost all the investors are pooling their money in this lobby. The developers keep on giving handsome returns to all the investors who help them in providing the investment to complete the projects.

• How does the real estate work?

Real estate is a business of constructing properties for the end users. Since real estate is at a boom and is in the demand by every individual, it is a huge money-making business. But not all investors buy it for self-consumption. They invest when the project has just started or in the initial phase and get out of it when it nears completion or is completed. This way the holding period of the construction gives them humongous profits which is the fruit of investing while you can hold it for a while. The profits are just unimaginable. But do you need a huge investment for such a profit. Well it completely depends on the kind of investment you would like to do and the budget you have.

• What you need to be careful of?

If you wish to invest for a goal then you need to be calculative. But if you need to do it just for investment purposes then a small amount of profit would also excite you. But you need to be very careful while dealing with real estate developers. There are many loop holes that need to be known by the investor. The basic thing to be done by you is to be sure on the paper work. Check on the property and the land it is built upon. The titles should be clear and the paperwork should be accurate. Also, if you are investing in a property then ensure you get all the rent agreement formats seriously and keep them updated as and when needed. Many times, your property needs to be sold to someone who wishes to use it for self-consumption.

All such things help you to be safe from any legal formalities or complications. It is a way to protect your property and investment amount. You would find many fraudsters who dupe you of the money and sell your property to multiple people to make more profits but in an illegal manner. This can be evaded if you are smart enough and know all the loop holes of the game. It is not easy to get into the act completely as it is just a side income you wish to generate for your better future. But if you wish to make it big in this game then I suggest you know all that is required.

You can get in touch with many real estate brokers who has immense knowledge about the property and the business to help you to take the right decision. These brokers should be registered with the real estate lobby and should have a good background. If they are not the right people then you would face challenges and losses as well if not paid much attention. Real estate is a huge pool of investors and you would need to be smart on all your actions to make a good profit out of your investment. So, ensure you have all that would make your investment profitable.


This is a guest post by Mukul Malik

Odd even rule has drawn public attention to the alarming pollution levels in Delhi. Now, we need a long term sustainable solution for curbing vehicular pollution and jams. Here is one – an App based public transport system.

By: Sachin Gupta | Find me on Twitter Follow @sach_gupta

1. The Problem

Last few months have seen heated debates among environmentalists, activists, policy makers, and public at large about the deteriorating air quality in national capital Delhi. Aam Aadmi Party Government in Delhi led by Arvind Kejriwal has announced some measures to curb the rising pollution levels. Notably among them has been the animatedly debated ‘odd-even formula’.  We wish them best and hope pollution levels reduce drastically in Delhi.

So, what contributes to Delhi’s Pollution? Let’s have a look:

Transport contributes 22.7% to overall pollution levels in Delhi. Out of which Heavy and light trucks contribute about 14.2%. Private vehicles that include cars (4 wheeler) & 2 wheeler contribute 6.6%. Public transport that includes buses and 3 wheeler contribute 1.9%.

Government of Delhi has announced variety of measures to curb pollution at all levels. One among them is ‘Odd-Even’ formula which intends to target 4 wheeler. Will it succeed? We will have to wait for the 15 day trial run.

 

2. Existing situation

But what is the existing situation as far as transport is concerned? With growing GDP, more and more people are able to afford their own private vehicles to commute in the city. According to Delhi Economic Survey, the vehicular population in Delhi registered a 135.59 % jump between 1999-2000 and 2011-12 to touch 74.53 lakh. As things stand today, Delhi adds 1400 cars a day on its roads. About 50% of these cars sold run on diesel. Despite the world class Metro Rail, the public transport has not been able to keep pace with growing demand.

Sumit Sachdeva, Who lives in Faridabad drives a petrol CNG car, says, “I have to go to my office on Lodhi Road from my home in Sector 21C in Faridabad. There is no door to door public transport facility. If I want to take Metro Rail, then, first I have to take an auto from home to Metro station and then another auto from Metro station to office. It’s too time consuming and at the same time expensive”.

Manish Sharma, who lives in Greater Kailash II drives a diesel car, says, “I am in a sales job and there is no way I can use the existing Metro Rail or other Public Transport systems. I have 3-4 meetings a day and all these public transport systems don’t connect me at all”.

Everyday there are Lakhs of such cases where people use their own private vehicles rather than using the public transport. This not only raises the pollution levels but at the same time chokes city roads leading to massive traffic jams.

 

3. Proposed Solution

It is clearly evident that unless government provides high quality public transport system with last mile connectivity, citizens will continue to use private vehicles.

It is in this context, we provide this solution with the motto that “Public Transport needs to compete with Private transport in terms of comfort, safety, and cost efficiency”.

With the existing infrastructure of Metro Rail, citizens can be made to use public transport more. All that is needed is the last mile connectivity. So, how do we get the last mile connectivity? By deploying ‘Metro Shuttles’ as shown in the picture below:

    3.1. Implementation of Metro Shuttles:

A high quality 14 seats electric shuttle costs about Rs 3.5 Lacs with following specifications:

• Overall Dimensions:4650*1675*2020mm
• Seat Capacity:14 Persons
• Motor:5kw DC Motor
• Body Color: Customized
• Fuel: Electric
• Emission Standard: 0 Emission
• Maximum Speed(Unload / Full Load):30km/H
• Battery:6V*8
• Max driving distance (20km/h constant speed on flat road) (Km)    ~80

The idea is to connect people with Metro rail using these Metro Shuttles. Each Metro Shuttle will run within the radius of 5 km with multiple predetermined Metro Shuttle Stops. Metro Shuttle Stops will be created keeping in mind that no individual should walk more than 500 meters to catch a Metro Shuttle.

These Metro shuttles can be manufactured in India, thereby, giving boost to Make in India campaign.

           3.1.1. Financing

Let’s assume, there is a requirement of 100,000 Metro Shuttles to cover whole city.
Cost of buying these Metro Shuttles = 100000x350000 = Rs 3500 Crore.
Now, who will provide funding for buying these Metro Shuttles? Here is the plan:

• Government of Delhi to announce the launch of Metro Shuttles system.
• By just paying 10% (Rs 35000), an individual with a valid driving license can buy a Metro Shuttle to operate in the city. These drivers will not be on payroll of Delhi Government but will be guided by Delhi Government’s Rule Book of Public Transport system.
• Remaining 90% (Rs 315000) to be financed by banks at subsidized interest rates of say 5% with Government of Delhi providing collateral support. Therefore, there is no risk for banks to give loans to Metro shuttle owners who normally don’t have necessary papers to get loan.

           3.1.2. App for Metro Shuttle Stops

An app will be developed with information about Metro Shuttle stops, drivers, and timings. Citizen can download the app on their Mobile phone in order to locate the nearest Metro shuttle stop with navigational capabilities. Any individual who wishes to commute within the city can use the Metro Shuttle to go to Metro station or vice versa take a Metro shuttle from Metro station to the nearest stop for his home. Metro Shuttle stops need to be created in such a way that any individual using the app shall not walk more than 500 meters to reach to Metro shuttle stop.

           3.1.3. Pricing

Ticket Price for using the Metro Shuttle will be highly affordable. And it needs to be fixed at say Rupees 5. People can pay in following formats:

• Cash (If a user wishes to pay in cash, then, the ticket price could be Rs 10. This is to encourage users to use Metro Shuttle Card).
• Metro Shuttle Card that can be charged at the metro station itself or Pre paid Metro Shuttle Card can be sold at super markets. A person using the Metro Shuttle card can swipe the card at the swipe machine attached to all Metro Shuttles. The money goes directly to the central authority and from there Metro Shuttle Driver can claim once every week or fortnightly.

           3.1.4. Real time tracking

Metro Shuttles will run in 2 shifts with only one shift allowed for an individual driver to operate.

• 6 AM to 3 PM
• 3 PM to 12 MID NIGHT

All the drivers driving Metro Shuttles will be registered by Government of Delhi and their behavior & capabilities can be tracked by the ratings provided by users on their Metro Shuttle App.

    3.2. Political Benefits:

Government of Delhi can draw huge political mileage by implementing this proposal. Indirectly, they will be providing jobs to over 1 Lac people (many of them can be women drivers). 

Can it be implemented? Yes, all it needs is a ‘Project Champion’ and in a matter of 2-3 years, the plan can be successfully implemented. And subsequently be adopted in other NCR cities.

We have to note that in many developed countries in Europe, Government provides last mile connectivity to people. In addition to trains, they have trams which take people from one stop to another within the city. However, In India, building trams is a futile and expensive exercise. Instead, we can easily implement Metro Shuttles.

    3.3. How to discourage use of Private Vehicles:

In addition to implementing the Metro Shuttle system, Government can tax the use of private vehicles in following way:

• High cost of parking
• More taxes on fuel

4. Conclusion:

In a nutshell, government needs to provide high quality public transport system. A system that is inexpensive, can be implemented fast, and at the same time strengthens the government’s political capital. Metro shuttle system can be the answer.

Thanks! Please comment and we can take the discussion further. Maybe we find some other ideas :)

Kindly share :)

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