GST Implications On Real Estate

– Anil Pharande, Chairman – Pharande Spaces

The Goods and Services Tax (GST), is a kind of a comprehensive indirect tax on sale, manufacture and consumption of different kinds of goods and services throughout India, with all other Central and State taxes intended to be subsumed under it. If this happens, it has far-reaching implications, including on real estate.

Taxation and real estate industry

If we take a look at the real estate industry in India today, we find that there have been major tax changes in the last few years. However, these taxes are not uniform all over the country – different practices and regulations are followed in different states in India. It was the 46th Amendment to the Constitution that brought massive changes towards taxation in the real estate sector. Later in the following years, special powers were given to the State Government for implementing Value-Added Tax (VAT) on some specific kinds of transactions.

Pharande Vaarivana Pune

For land, property and other kinds of work contracts, different kinds of taxes are levied by the State Government and the Central Government. The transactions are mainly categorized in three parts – value of services, value of goods and materials and value of land. VAT is applied by the State Government on the goods portion, while value of services is taxed by the Central Government. However, other than stamp duty, there is no clear tax on the transactions regarding value of land. This situation leads to confusion and can result in dual taxation. Compliance and implementation of such taxes also get difficult.

The real estate industry has justifiably been feeling jittery with such confusing tax implantations and calculations. For one real estate transaction, multiple taxes need to be paid and this has a negative effect on the industry. The industry’s demand to bring GST on board is primarily to get a clear and transparent taxation rule for the real estate sector in India.

Expected GST effects on the real estate industry in India

The implementation of GST can prove to be a significant step in reforming indirect taxation in India. Chances of double taxation would be diminished, as some of the Central and State Government taxes will be amalgamated into one tax. This will ease the process of taxation considerably, making its enforcement and administration easier and simpler.

Talking about the real estate industry in this context, there are many things which have to be known and understood. In the current situation, a builder or a real estate developer incurs various kinds of expenses during the construction phase of a project. Different kinds of taxes are involved with these expenses, such as VAT/CST, customs duties, service tax, excise duty and so on. Majority of these taxes are expenses that are included in the system. This is because they are not creditable to the developer or to the end-customer. These non-creditable expenses lead to tax inefficiency, which is not desirable.

One positive impact that might result from GST is doing away of restrictions on credit utilization. This will definitely help in strengthening the credit chain in the entire system. If property developers and builders can properly manage this aspect, they will see some profit.

It is expected that the proposed GST structure will have a progressive and streamlined approach. The tax compliance rules should not have any serious impact on real estate builders and developers. In present conditions, builders running projects in different states have to comply with State-specific VAT laws, as well as other kinds of service taxes. Bringing in GST will therefore not bring any additional compliance burden on real estate builders in the country.

Issues regarding GST which affect real estate builders

There are a few clarifications that might be sought for GST taxation by real estate developers. For instance, the definition of a real estate developer varies from one state to another in India. The composition scheme varies according to State, in which the VAT rates come between 1-5%. In some States, there are differences between the terms real estate contractors and real estate developers. It has to be understood what will the GST implications are if the terms have different meanings.

There might be some confusion regarding GST implementations on residential property, as well. In the present scenario, there is no service tax applicable on renting immovable property, particularly for residential purposes. But service tax and VAT is implemented on the construction work. The question that arises is if the proposed GST will offer differential tax for residential properties.

As of now, it does not look like completed residential projects will be affected by GST, as buyers into completed projects have already paid statutory charges such as stamp duty and registration charges on the transaction. The segments to watch on the GST front are under-construction flats and rental flats, which are expected to come under the ambit of GST. GST will apply to the materials that a developer procures for building a residential project, so there is a direct correlation to the overall cost of construction.

Much depends on what rate of GST will finally be confirmed. If it is more than the existing cumulative taxes currently in force, it means that the overall cost to consumers of buying an under-construction flat will increase along with the added cost of stamp duty and registration. At the same time, developers have to keep an eye on costing, as price competitiveness is very important in the current real estate market scenario.

About The Author:

Pharande Vaarivana PuneAnil Pharande is Chairman of Pharande Spaces, a leading construction and development firm that develops township properties in Western Pune. Pharande Promoters & Builders, the flagship company of Pharande Spaces and an ISO 9001-2000 certified company, is a pioneer in the PCMC area offering a diverse range of real estate products catering especially to the 42 sectors of Pradhikaran. The luxury township Puneville at Punavale in West Pune is among the company’s latest premium offerings. Woodsville in Moshi is another highly successful PCMC-based township by Pharande Spaces which is now in its 3rd phase.

PCMC In 25 Years – A Fast Forward Into The Future

Anil-Pharande
 
 
Anil Pharande on his vision and his expectations of the PCMC of the future
The Pimpri Chinchwad Municipal Corporation follows a real estate model that has proven to be the most progressive and sustainable all over the world. The essence of this model is ‘planned development’ or ‘controlled urbanization’. PCMC is a twin city to Pune, but in that respect is uniquely different. Pune’s real estate development has not followed any sort of plan, and it is not hard to see it as a smaller version of chaotic Mumbai in less than 25 years.
A HOMOGENEOUS, MULTI-FACETED MOSAIC
In the same time span, PCMC will have attained its fullest potential as a model city of the future. Obviously, it will look very different from what we see today. It will have grown exponentially, into a harmonized montage of large industrial units, IT Parks, hotels, shopping and entertainment plazas, educational institutes and healthcare facilities – towering above public parks and gardens and crisscrossed with multi-lane roads and flyovers.
Further, the additional 25,000 acres of land that have come within the PCMC jurisdiction by virtue of the last Development Plan will eventually result in the addition of at least 2 million new homes. These homes will cater to every social stratum of property buyers, from the lower to the high income segments.
HORIZONTAL AND VERTICAL EXPANSION – CREATING A SPECTACULAR SKYLINE
In other words, there will be tremendous – yet controlled – horizontal real estate growth over the next 25 years. Most spaces allocated for residential use will have been utilized for that purpose. But this will not result in an urban jungle, since the PCMC planning blueprint will enforce the maintenance of vast green spaces at all stages of development.
Moreover, the Pimpri Chinchwad Municipal Corporation will at all times endorse self-sufficient real estate developments such as townships and other integrated residential projects. The authorities have long since recognized that these are the most sustainable and progressive models for optimum real estate growth. These projects will ensure a scientific uniformity to the horizontal growth.
However, even these 25,000 acres will not suffice, since PCMC will have to accommodate a massive demand for housing. The following graph illustrates this point – it charts the population growth in PCMC over the last 25 years, and clearly depicts that this growth has been almost ten-fold (from 200,000 to 2 million).
graphAs the graph below indicates, there is reason to believe that population growth is likely to cross 50 lakhs (5 million)  by 2035
This growth will be fuelled by several factors. On the one hand, there will be a huge requirement for homes from the rapidly growing manufacturing sectors of Pimpri-Chinchwad and the Chakan-Talegaon belt. Chakan itself, though a burgeoning industrial hub, has little to offer by ways of residential facilities. The onus naturally falls on PCMC, which will necessarily be the residential location of choice for the entrepreneurs and employees of these units.
Simultaneously, there will be the spill-over effect from Pune City (which will have reached complete saturation point in the next 25 years). We further have to factor in the ever-increasing migrant population from all over the country, attracted as much by the excellent education institutions as by the varied career opportunities.
The obvious solution lies in growing vertically as well as horizontally. More land will have to come within the purview of planned development, and building heights will need to increase from the currently permitted 70 metres – approximately 22 floors plus parking – to 100 metres or more. FSI, which still currently stagnates at 1, will need to be raised to at least 2, or even 2.5.
In 25 years, PCMC will be a skyscraper city on the lines of Gurgaon.
WORLD-CLASS INFRASTRUCTURE
In most cities, such growth would mean serious infrastructure challenges. We have already seen what happens in a city like Mumbai, where skyscrapers are being built without sufficient parking, connectivity and municipal amenities to support them. However, thanks to the master plan that PCMC will always adhere to, the necessary infrastructure will precede the building of high-rises. I firmly believe that 25 years from now, the Pimpri Chinchwad Municipal Corporation will serve as a national and even international benchmark for planned, scientific vertical real estate growth.
An essential pre-requisite to support this massive growth is an advanced public transport system. With an eye on this future requirement, PCMC has adopted a model similar to Ahmedabad’s Janmarg – a scientifically designed BRT-based  public transport system spanning 130 km across 14 routes in PCMC. This system involves 4-lane wide, exclusive roads with grade separators that will reduce the dependence on private transport in favour of more efficient public transport. This, in turn, will result in smooth traffic flow, less road blocks, radically lower pollution levels and a healthier, energy-conserving environment. To ensure that there are no hitches in the development of this lifeline, the PCMC has established an Urban Transport Fund for its funding.
Another pre-requisite for efficient transport is more connecting roadways. A ring road is on the drawing boards, but that will become truly effective only with the implementation of a hub-and-spoke road network. To illustrate this point, there are currently only two arterial roads connecting Pune with Pimpri-Chinchwad, and only two connecting Pimpri-Chinchwad with Chakan. These cannot sustain the enormous increase in vehicular traffic that industrial and residential growth will generate.
Again, it is my opinion that this alone may not suffice to cater to the public transport needs that will emerge over the next two decades. I personally feel that an elevated skybus or monorail network or even an underground rail network will be called for.
THE ULTIMATE GAMECHANGERS
I cannot end these musings without mentioning the new international airport being planned near Rajgurunagar and the International Convention Centre at Moshi, which will cover a sprawling 200 acres. The Convention Centre alone will spawn a huge tourism, hospitality and retail boom which will convert PCMC into a major urban destination both within and outside Maharashtra, perhaps second only to Mumbai. Global hotel chains will have redefined the hospitality sector, and the shopping centres will be populated by marquee retail brands.
In fact, the next two decades are surely going to see PCMC being catapulted into the international Big League, giving it a distinct global identity in its own right.
Anil Pharande is President, CREDAI – PCMC and Chairman, Pharande Spaces, one of the most innovative developers in Pimpri-Chinchwad

BRTS Premium Row: CREDAI Supports GB Resolution For Rate Reduction

(Pune Mirror, October 12, 2010)
The Pimpri Chinchwad Municipal Corporation (PCMC) has invited objections and suggestions for the reduction in the BRTS premium rates that have been passed by the general body (GB) of the municipal corporation.
More importantly, the Confederation of Real Estate Developers’ Associations of India (CREDAI) has come out in favour of the proposed reduction in premium rates effectively pitting the builder lobby against municipal commissioner.
Anil-Pharande
 
 
Anil Pharande, president, CREDAI Pimpri Chinchwad unit, said, “The premium rates decided earlier are very high and not practical. It will increase the cost of construction. Suppose, the rate for TDR is Rs 700 per sq ft and then PCMC asks us to pay a premium of Rs 900 per sq ft.
This itself adds up to Rs 1600 per sq feet to the overall cost. Hence, it is necessary to reduce the premium rates. The current proposal to charge 25 per cent of the ready reckoner rate is appropriate.”
In August, the PCMC GB passed a resolution to reduce the premium charges to 25 per cent of the ready reckoner rate for allowing extra FSI. The ready reckoner rate is the rate of the land decided by the government, which is generally very less as compared to the market rate of the land in that area. So, the premium cost would also come down substantially.
After the suggestions and objections have been tabled, the proposal would be sent to the State government for approval. The issue had created quite a furore, after Opposition members alleged that the reduction in premium would cause loss of thousands of crores of rupees in revenue to PCMC. Sharma had remarked then that the GB is asking for a drastic reduction in premium rates, which, in his view, should not be done.
The PCMC had planned eight BRTS corridors in PCMC and would be spending in excess of Rs 2,100 crore for consructing these. The PCMC would be spending around 30 to 40 per cent of this amount, while the rest would be funded under JNNURM by the Central and the State governments.
So, to recover to construction cost of these roads, PCMC is allowing 0.8 extra FSI upto 100 metres on each side of the BRTS roads. For giving this extra FSI, PCMC would charge premium rates of 300,600,900 per sq. ft in A,B,C zones in PCMC. The state government also approved the proposal.
“PCMC had earlier given the powers of deciding the rates of BRTS premium to the municipal commisioner and the administration. But they made a blunder and proposed very high premium rates, which would make construction costs unviable.
The rates that have been passed by the general body now are appropriate. We expect the State government to give approval to the same in the next two to three months.”
Current Development Control Rule
TDR generated from any of the zone, from the sanctioned development plan (DP) of old and extended limit shall be allowed in the BRT corridor on payment of premium charges, which should not be less than what is decided by the general body (GB).
These premium charges are to be decided by the PCMC Commisioner from time to time. Premium shall not be charged for the 0.4 FSI of road widening area of the receiving plot
Modification Proposed
TDR generated from any of the zone, from the sanctioned DP of old and extended limit shall be allowed in the BRT corridor on payment of premium charges, and the said premium shall not be charged as per the policy sanctioned by the govt but shall be charged at the rate of 25 per cent of the govt ready reckoner rate of the receiving plot. Premium shall not be charged for the 0.40 FSI of road widening area of the receiving plot.

Reducing Construction Premium Along BRTS – PCMC

PUNE: Following the controversy over the Pimpri-Chinchwad Municipal Corporation (PCMC) general body’s decision to reduce premium for constructions along the Bus Rapid Transit System (BRTS) corridors in Pimpri-Chinchwad, municipal commissioner Ashish Sharma said on Monday that the civic administration will give its opinion to the state government which would be in the “best interests” of the municipal body.
Sharma said, “The PCMC had approved a proposal for densification of corridors along the BRTS route. It had also received the state government’s approval for it. This was appreciated even by the Asian Development Bank (ADB). But now, the PCMC’s motive behind the corridor densification will be diluted if the demand for reduction in the premium charges is implemented. The premium charges must be linked to a dynamic factor and not a static factor,” he said.
Sharma said suggestions and objections will be invited from citizens regarding the revised proposal approved at the general body to reduce premium charges. The proposal will then be sent to state government for approval. “Citizens can give their suggestions and objections when the PCMC invites them,” he said.
At the general body meeting held on August 20, a proposal was approved to cancel the levy of premium charges as approved by the state government, and instead charge premium as per ready reckoner rates.
Shiv Sena corporator Seema Savale has alleged that the suggestion was not properly read so there was confusion among the corporators.
Savale in her letter pointed out that the PCMC will be developing the BRTS roads and feeder routes with a total length of 97 km.
She further said that as per the earlier premium policy approved by the state government, the PCMC will get premium charges of around Rs 5,000 crore.
However, if the proposal to reduce the premium charges is implemented, the PCMC will get only Rs 1,250 crore, suffering a loss of Rs 3,750, she said.
Meanwhile, Savale has demanded that the powers of the city engineer, and deputy city engineer to give building permission, development permission, building commencement certificates, should be granted to senior officials of the town planning department. Savale said the government has issued directives in this regard.
When asked for his comments, Sharma said there is no need to withdraw the powers granted to the city engineer. “We have checked with the Pune Municipal Corporation, where these permissions are given by city engineer and deputy city engineer and not by the town planning department,” he added.

PCMC To Build 1.4-km-long Link Road

PUNE: The Pimpri-Chinchwad Municipal Corporation (PCMC) will construct a 1.4-km-long road with six lanes at a cost of Rs 25 crore, linking the Empire Estate flyover with Chinchwadgaon-Kalewadi bridge.
The Empire Estate flyover itself is part of the bus rapid transit system route (BRTS) route between Kalewadi phata to Dehu Alandi road.
Dilip Kudale, co-ordinator, engineering department, PCMC, said the BRTS route has been divided into five sections and the construction work has been taken up accordingly. “The BRTS route will increase the north-south connectivity within the municipal limits.”
The proposed 1.4-km-long road will be 45 metres wide. Of the six lanes, two will be for BRTS buses. In addition, there will be cycle tracks, footpaths and provision for parking and tree plantation.
Kudale said the PCMC has 60 per cent land in its possession for the construction of this road and the remaining land will be acquired soon. Meanwhile, the PCMC has invited bids for the project. “The tender process is likely to be completed by end of November. The project has to be completed in 18 months,” he added.

Pune Real Estate: Issue of Illegal Constructions Resurfaces

The issue of illegal constructions has resurfaced on the agenda of civic bodies. Pune Municipal Commissioner Mahesh Zagade, who found out that there was only one building inspector per ward office to keep check on construction activity has decided to set up a new system for tackling the issue of illegal constructions. On the other hand in the neighbouring Pimpri-Chinchwad, 25 corporators who have constructed illegal buildings find themselves in the dock as the state government has asked Dilip Band to probe the matter and suggest necessary action.
“There is no doubt illegal construction has come up in the city in last few years. There is one building inspector for each ward office who has the responsiblity of checking the construction related activities. The person has to check construction that comes up as per the permission and also tacke action against illegal construction. It is a difficult job for one person,” said Zagade.
Zagade said the construction activity is at peak in the suburbs while very minimum in the old city area. “Thus, there is a plan to shift the manpower available to the ward office that has more construction activity from the place where there is not much work,” he added.
The municipal commissioner has directed all the zonal commissioner to prepare list of illegal constructions in their jurisdiction so that action can be initiated against them.

PCMC Pipeline Contractors To Level Dug Up Roads At Own Cost

PUNE: The water supply department of the Pimpri Chinchwad Municipal Corporation (PCMC) has put a clause in tender bid documents making it mandatory for contractors to level the road after the pipelines are laid.
Earlier, the contractors would lay the pipes on roads and refill the trenches with uneven murum, resulting in inconvenience for motorists. Later, the asphalting work of these rough patches was given to new contractors for an extra price. Now, the one who lays the pipes will have to level the road with tar.
Ambadas Chavan, additional city engineer and chief of water supply department, PCMC, confirmed that such a clause has been included in the tender document.
Joint city engineer Pravin Tupe said, “Earlier too the PCMC used to get the trenches filled from the contractor. But now it is being explicitly mentioned as a mandatory condition while inviting bids for future projects. “The tender process will be completed in two months while actual work is expected to begin before the end of this year.”
The condition has been put up in the bid document for 18 projects of the water supply department, estimated to cost Rs 6.71 crore. Of these, 12 projects are to be completed in six months and five in a year. One other project has a two-year deadline.
Sulabha Ubale, group leader of Shiv Sena corporators, said, “The contractors dig up roads and other open areas but fail to fill the trenches. Accidents occur due to uneven roads. There is no co-ordination between the water supply department and the engineering department, due to which there is delay in reasphalting work of roads. The PCMC should ensure that the contractor who has dug up the roads for pipelines fills the trenches and asphalt the roads. ”
Source

PCMC To Acquire Additional Land For Flyover

PUNE: The standing committee of the Pimpri-Chinchwad Municipal Corporation (PCMC) approved a proposal to acquire additional land at Kasarwadi for the flyover being built near Nashik phata.
The PCMC will have to acquire land along the Mumbai-Pune highway stretch for providing the “necessary links” to the flyover. The land to be acquired has not been shown in the PCMC development plan.
The municipal corporation has already started the construction work of the two-storied modern flyover which will go across the railway line as well as the Pavana river at Kasarwadi. The PCMC will be spending over Rs 90 crore on the flyover.
In another decision, the committee approved a proposal to allot work to an agency for carrying out a survey for the development plan of the Tathawade village which was merged within the PCMC limits last year.
Source

PCMC Collects Rs 60 Lakh From Constructions In Villages

PUNE: New constructions that have come up in villages situated in the 10 kilometre periphery of the Pimpri-Chinchwad township have collectively paid Rs 60 lakh in the last three months for obtaining a No Objection Certificate from the fire brigade.
Kiran Gawde, chief fire officer of PCMC, said the money was charged in accordance with the state government notification issued in May this year to ensure planned development in areas surrounding the Pimpri-Chinchwad township. So far NOCs have been issued to 20 new constructions in 77 villages of Khed and Maval talukas. Earlier, A similar notification was issued to villages lying close to the Pune Municipal Corporation limits.
Uday Wankhede, deputy chief fire officer of PCMC fire brigade said, “Developers of 20 new constructions had applied to obtain the NOC. Most of them were for residential use while others were for hotels and hospitals.”
Source

PCMC To Demolish Chapekar Memorial Tower To Ease Flyover Construction

PUNE: The Pimpri-Chinchwad Municipal Corporation (PCMC) will start demolition of the Chapekar memorial tower at Chapekar chowk in Chinchwadgaon on August 25 to clear the hurdle in construction of a flyover.
In 2004-05, the PCMC had proposed to construct a rotary flyover here which would have had left the Chapekar statue tower in the middle. But, later, the PCMC decided to construct a normal flyover at the spot at the cost of Rs 21 crore.
Chapekar chowk located at Chinchwadgaon is one of the busiest chowks in Pimpri-Chinchwad township. Seven roads meet at the chowk. It has vegetable markets, municipal schools, PCMC Zone B office, post office, commercial offices and interior designer residential buildings located around the chowk leading to heavy movement of vehicles and people throughout the day.
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