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.

Court Tells Govt To File Report On Misuse Of Urban Land Ceiling Act

(Hindustan Times, October 08, 2010)
Complete the examination of 29 of the 235 files on orders passed under the Land Ceiling Act by allegedly using fake documents, the high court on Thursday asked retired IAS officer Sudhakar Joshi. Joshi was appointed by the state government to examine more than 235 orders passed under the Urban Land Ceiling and Regulation Act, 1976, by allegedly using fabricated documents. A division bench of justices BH Marlapalle and UD Salvi asked Joshi to submit a report by October 14. Ravi Kadam, advocate general, informed the court that Joshi will complete the examination of the 29 files within a week and the Urban Development Department may take decision on the same.
On September 15, Joshi had told the court that he has been able to examine only 120 files. The high court subsequently asked the government to select 29 files as model cases for examination on priority basis.
The court is hearing a PIL filed by Madhav Bhandari, Bhartiya Janata Party spokesperson, claiming that Yogesh Mhase, officer on special duty to then home minister RR Patil, and some government officials were not arrested in a case of alleged fabrication of documents under the act.
The PIL stated that between 1976 and March 2005, 11,894 returns [statement of property extracts and details of persons having interest in the land] were filed in the Pune urban agglomeration. The probe was handed over to the Criminal Investigation Department in November 2005.
In response to the PIL, on October 5, Thane police commissioner SPS Yadav had filed an affidavit that the investigating officer, Avinash Mokashi, had falsely implicated government officials and made allegations against senior police officials because he was transferred out of the Crime Investigation Department.
Yadav also gave a clean chit to Mhase saying that there was no evidence against him. Mokashi is now posted at the Badlapur police station.
Ashish Chavan, Mokashi’s advocate, told the court that he will file an affidavit by next hearing. Ganesh Sovani, petitioner’s counsel requested the court that former Pune commissioner, Jayant Umranikar, be asked to file an affidavit.

Flat Registration Offices To Be Linked To Curb Scams

At a time when property registration frauds are becoming increasingly commonplace, the state government has decided to interlink all sub-registrars’ offices. The move will curb instances of a single flat or a property being registered in names of multiple buyers. Once the offices are connected, registration officials will be able to verify if a sale deed has been registered at any other sub-registrar’s office on an earlier occasion.
At present, property transactions in Mumbai, Pune, Thane and Nagpur can be registered at any of the sub-registrars’ offices located in each district. This means that even if your house is in Bandra, you can get it registered, say, at the Borivli sub-registrar’s office. However, there’s a flaw in this system. As the sub-registrars’ offices are not interlinked, officials have no way of ascertaining if the same flat or property has been registered elsewhere.
Unscrupulous minds have been exploiting this very lack of coordination and instances of a single flat being registered in the names of multiple buyers have surfaced. In the absence of a common database on property registrations, many citizens had to run from pillar to post to get their home loans approved as banking officials found it hard to get correct details during the verification process.
The issue was recently raised in a meeting called to discuss how to better disbursement of home loans. The meeting, held in Mantralaya, was chaired by chief secretary J P Dange. During the meeting, housing secretary Sitaram Kunte pointed out that there has been a sharp rise in property registration frauds. “Taking cognizance of the issue raised by Kunte, Dange directed the officials concerned to rectify the registration system at the earliest to prevent recurrence of such scams,” a senior Mantralaya official said.
Collections from registration and stamp duty have witnessed a four-fold hike in the last decade. The government earned Rs 2,200 crore during the financial year 2000-01, while the figure shot up to Rs 9,600 crore in 2009-10.

Pune Property Tax Defaulters To Face 2% Monthly Fine

PUNE: The Pune Municipal Corporation (PMC) has decided to execute the state government’s notification to impose a two per cent penalty on people who fail to pay their property tax for the first six months of the year 2010-11 before September 30.
The government notification of May 31, 2010, has authorised the civic body to impose a fine of two per cent on the tax amount for every defaulting month if the property tax is not paid within a given period of time. The second instalment of the property tax has to be paid before December 31, 2010.
In the last two years, the PMC has brought nearly 80,000 properties under its tax net. However, an estimated 45,000 properties still remain out of its reach. The standing committee has repeatedly told the administration to make an effort to widen its tax net. Once the unassessed properties are covered, the civic body is expected to get an additional revenue of Rs 100 crore to 150 crore.
The PMC’s tax collection and assessment department has already submitted a plan regarding this to the standing committee. After octroi, property tax is a major source of revenue for the PMC. The department has proposed that digital pictures of all properties be taken for records and an aluminium plate be fixed on each property, identifying its survey number and other details.
Meanwhile, in order to improve collection of property tax, the civic administration has proposed that zone-wise agencies be appointed to assess properties and bring unassessed properties under the tax net.

Free Parking Space Norm In Pimpri-Chinchwad Municipal Corporation

Pimpri-Chinchwad Municipal Corporation is the first civic body in the state to come up with a decision under which buyers of residential apartments get free parking space.
On June 11, 2009, the Pimpri-Chinchwad Municipal Corporation (PCMC) declared that no building permission plans will be sanctioned if the builders refuse to provide free parking space to apartment buyers across the twin industrial township.
This was after a series of reports in Pune Newsline, highlighting the Bombay High Court which had ruled that builders cannot sell parking space and that it should be made available to the flat buyers free of cost.

Pune Housing Societies May Get Ownership Of Land

PUNE: Consumer activists and members of housing societies have welcomed the government’s recent intention to implement the three-year old amendment to the Maharashtra Ownership Flats Act 1963.
The amendment makes it mandatory for builders to transfer ownership of land to the respective society, in the form of a conveyance deed. The penalty for errant builders, as per the new amendment, could go upto a year’s imprisonment and a fine of up to Rs 50,000.
Considering the fact that a sizable number of the 30,000-odd housing societies in Pune lack a conveyance deed, citizens say the implementation comes not a moment too soon.
Source

PMC To Impose Penalty On Property Tax Defaulters

PUNE: The Pune Municipal Corporation (PMC) will execute the state government’s notification to impose a 2 per cent penalty on property tax defaulters.
For the year 2010-11 property tax for the first six months has to be paid before September 30, 2010 and those who fail to pay it will have to pay a 2 per cent penalty on the tax amount every month till the tax is paid. The second instalment of the property tax has to be paid before December 31, 2010.
The PMC’s tax collection and assessment department has proposed that digital pictures of all properties be taken for the department’s records and an aluminium plate be fixed on each property, identifying its survey number and other details.
Read the rest of the article here.

Pune Property News: Bombay High Court Rules In Pune Businessman Case

Income of a man’s family can decide maintenance

MUMBAI: The joint family finances of a man can be considered while determining the quantum of maintenance to be paid to his estranged wife, the Bombay high court has ruled in a case involving a 31-year-old Pune businessman.
Hiking eight-fold the maintenance the businessman, Amar Shejare, must pay his estranged wife Seema and their minor daughter to Rs 20,000 a month from Rs 2,500, a division bench of Justices A M Khanwilkar and Amjad Sayed said, “Considering the lifestyle of the Shejare family, it would necessarily follow that the income of (Amar) was substantial.”
The judges added, “(Amar) had substantive income and considering the holdings of the joint family, he is capable of paying the monthly maintenance to the wife and the minor daughter.” The court also directed Amar to pay an additional Rs 10,000 to his wife towards legal costs.
Amar had contended that the property was owned by his joint Hindu undivided family. “We are conscious of the fact that Shejare is one of the coparceners (joint heir in the family property) and will have only a share in the said income,” the judges said, but pointed out that the family owned considerable property. (Names have been changed to protect the couple’s identities.)
Read the rest of the article here.

Pune State Forest Department To Wall Off Its Land

Fearing encroachment, the Pune division of the State Forest Department is planning to construct compound walls around forest land and hills in the city. The department owns approximately 2,000 hectares in Pune and it will soon forward a proposal to its head-office in Nagpur to get funds for the work.
“We have observed that encroachment on public properties is increasing on a large scale. Once an illegal property comes up on a forest land, it becomes difficult to remove them. Gradually, these grow into several slums and then things go out of hand. Hence, to prevent illegal inhabitation on our land, we have decided to erect proper compound walls,” said Ashok Pawar, assistant conservator of forests of Pune Division.
The forest department has land in Bhamburda, Pachgaon Parvati, Wanavdi, Kondhwa, Ghorpadi, Undri, Hadapsar and Warje. “We had arranged a tour of the members of the Pune Tree Authority of the Pune Municipal Corporation to the forest land in the city. They saw that there is absolutely no or very negligible human interference on lands with compound walls,” said Prabhakar Kukdolkar, a senior forest official.
Read the rest of the article here.

PCMC Tells Irrigation Dept To Mark Floodlines On Development Plan

PUNE: The Pimpri-Chinchwad Municipal Corporation has asked the state irrigation department to mark floodlines of the Pavana, Indrayani and Mula rivers on the city development plan. The corporation would send the revised plan to the state government for approval.
The development plan of Pimpri-Chinchwad was approved by the state government in 1995. However, 18 villages were merged with the PCMC in 1997. The process for approval of the development plan of the merged villages is still going on.
Read the rest of the article here.