GST impact: How real estate fares against mother of all tax reforms

The Goods and Services Tax (GST) has finally become a reality, nearly one-and-a-half decades after it was first mooted. The journey towards a single tax system has not been particularly smooth as the GST has faced innumerable challenges due to issues regarding its structure, tax brackets and subventions for states that may face revenue losses. But in spite of the challenges and resistance, the determination of the government to implement GST showed the result, and it finally came into force on July 1.

GST is a destination-based tax and will incorporate the various indirect taxes currently levied by the central and state governments, including excise duty, service tax and value-added tax (VAT). There will be two components of GST - the Central GST (CGST) and the State GST (SGST). Both central and state governments will simultaneously levy GST across the value chain, on every supply of goods and services. The central government will levy and collect CGST while state governments will levy and collect SGST on all transactions within the state.

More than 160 nations have already adopted a unified indirect tax structure. In Asia, countries such as Indonesia, Thailand, Singapore, and the Philippines adopted a GST during the 1980's and 1990's, creating an effective tax system, with the comparatively lower administration and collection costs. It has enabled countries such as Singapore to lower its corporate and personal income taxes, which in turn has encouraged more foreign direct investment (FDI) and stimulated the overall economic growth in the country.

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How is real estate covered under GST?

• The GST Council has categorised renting of immovable property (including a commercial, industrial or residential complex for business or commerce, either wholly or partly) as supply of service.It has also included construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, as a supply of service.
• The act has identified lease of land and building, any lease, tenancy, easement and licence to occupy land as a supply of service.
• However, sale of land and completed buildings will be out of the purview of GST.
• Similarly, input tax credit has not been allowed for works contract services, when supplied for construction of immovable property or when goods or services or both are received for construction of an immovable property.

How GST will impact real estate?