Local and State level levies on real estate and petroleum products could continue even after these sectors are included in the Goods and Services Tax.

Under the proposal being discussed, property tax is likely to continue although other cesses may be subsumed under GST, once the sector is brought within the ambit of the new levy.

At present, local bodies are allowed to levy an additional entertainment tax, despite the sector being under GST. Sources said property tax is a significant source of revenue to States and subsuming it under GST would impact their fiscal math.

Some States are also understood to have suggested that registration fees on property should also be excluded from the new levy.

"Initial discussions have been started on inclusion of real estate in GST. However, detailed talks are yet to begin and the final decision will be taken by the GST Council," said a person familiar with the development.

Sources said that the issue of excluding property tax from GST was also taken up at a meeting of the erstwhile Empowered Committee of State Finance Ministers in December last year. However, only a few States attended the meeting.

Similarly, States are also keen to levy additional taxes on diesel and petrol when they are brought into GST, to protect their revenue collections.

The proposal was originally mooted by Bihar Deputy Chief Minister Sushil Modi, who had suggested that these items would be taxed at 28 per cent and would also attract a levy by States.

States’ compensation

Alternatively, States could seek a heavy compensation from the Centre.

Kerala Finance Minister Thomas Isaac told BusinessLine, "States should be compensated fully if petrol and diesel are brought into GST. And the compensation should be for a period longer than the five years mandated at present."

Finance Minister Arun Jaitley had recently indicated that real estate and natural gas may soon be included under the new levy. But States have expressed their reservations, he had said.

Officials indicated that the process is a lengthy one and there is still not complete consensus among States on including these sectors within GST.

The government will also seek legal opinion on whether an amendment to the Constitution will be required to include the realty sector within GST.

"In that case, it can be a lengthy process," noted the person, adding that amendments to the GST laws will still be required to include movable and immovable property in the definition of goods. Similarly, the definition of services will also have to be expanded.

The Centre has been keen to include real estate in the ambit of the new tax to discourage black money and tax evasion and also ensure better pricing.