The sector’s biggest expectation from this Budget would be inclusion of the sector in entirety under the GST regime.
Harpreet Singh
The real estate sector
continues to be in limelight, under Goods and Services Tax (GST) on
account of recent Anti-profiteering notices being issued to few
builders. Perennial direct and indirect tax issues, implementation of
the Real Estate (Regulation and Development) Act (RERA) and on-going
slump has raised industry’s expectation from Union Budget 2018-19.
Builders are looking forward to the Budget to come up with
announcements which can provide an impetus to the otherwise sluggish
sector.
The sector’s biggest expectation from this Budget would be
inclusion of the sector in entirety under the GST regime. Hitherto,
only under-construction properties are included and sale of fully
constructed property is not covered under the ambit of GST. This partial
exclusion has resulted in denial of input tax credits, cascading of
taxes and a case for imposition of other local levies like stamp duty,
registration fees etc. Internationally, also the precedent has been for
inclusion of real estate sector completely under GST.
The Government has formed a Committee to look into the
inclusion of the sector under GST and this issue is likely to be
discussed in the next GST Council meeting expected in January end.
In
construction industry, it is a common trade practice for contractors to
build an office at the construction site for administrative convenience
and effective management. Under GST, such contractors are required to
obtain registration for such temporary site offices thereby increasing
the compliance burden.
Further, the contractors usually transfer
expensive machinery (like boring, drilling, excavation equipment) from
one site to another for usage across different states (entity wide).
Taxing such trade movements coupled with impractical registration
requirements has added to the compliance woes of the sector.
Also,
the Government has introduced the concept of ’first occupation’ in the
declared service category under GST. Under Service tax regime, Service
tax was not charged on construction of complex, building etc. wherein
the entire consideration was received after issuance of completion
certificate.
However, under GST, the said benefit has been
extended even in the absence of the said certificate, provided the
’first occupation’ has taken place. Though the said provision appears to
be a blessing for the builders, the undefined expression ’first
occupation’ may germinate into a potential subject matter of litigation.
Further, with regard to credit under GST, there is an ambiguity if the
ultimate developer shall be entitled to credit of tax on works contract
services.
While the sector has been riddled with various new
issues, the long-standing issues like taxability of sale of Floor Space
Index (FSIs)/ Transfer of Development Rights (TDRs), taxability of
barter transactions in the form of giving away of free flats in lieu of
development rights continues to haunt the real-estate sector.
Clarification
on all the aforesaid indirect tax issues is something which the
industry would look forward to in the upcoming Budget.
Alike
Indirect taxes, there have been various conundrums encompassing the
realty business from Direct tax perspective as well. Delays by
contractors in delivering the realty projects is a common sight. As a
result, a tax payer, who has sold a house and invested in another flat
whose construction is required to be completed within the time limit
prescribed under section 54 of Income Tax Act, is being denied exemption
for such delays.
Further in the last budget, the Government had
restricted set off of loss arising from house property against any other
head to INR 2 lakh per annum. The said restriction has adversely
impacted the lives of common man.
Further, clarification regarding
inclusion of leasehold rights and tenancy rights in the definition of
’land and building’ for the purpose of availing the benefit of reduced
holding period is still awaited.
Resolution on aforesaid issues is what the industry is eyeing from the upcoming Budget.
While
the Government intends to foster the ideology of an efficient and
effective tax structure, reality sector is one sector which has been
adversely impacted on account of long standing and unresolved tax
issues.
It would be interesting to see how Budget unfolds for the
sector and makes ’realty’ either bite the dust or rise above the others.
10 Jan 2018, 01:57 PM