EASE OF BIZ – GST will boost sector

Parliament passed all the four supplementary legislations to enable the government to roll out the landmark Goods and Services Tax (GST) on July 1.

The bills were passed without any amendment even in the Rajya Sabha, on Thursday, where the NDA is in a minority. This clearly shows that the GST bill has support from both the sides of the political divide.

The Lok Sabha, where the ruling party has majority, approved the Central GST (CGST), Integrated GST (IGST), Union Territory GST (UTGST), and the Compensation to States law last month itself.

Expressing his happiness over the passage of the bill in the Rajya Sabha, without any amendment, Arun Jaitley, Union finance minister, said, “On 17-18 May, we will give the final approval to rules and rates–looks like it can be implemented from July 1.“

The GST Council has already decided on a four-tier rate structure of 5%, 12%, 18%, and 28% and a cess on the peak rate for demerit and luxury goods. It is expected that in the hous ing sector, GST will be levied at 18% on a finished house, which is yet to be registered, which means that the GST on the houses being sold by developers will be 18%. But, out of this, around 12% will go back to developers as credit on the taxes paid on in puts like cement, steel, and other accessories.

At present, the government levies service tax on the finished product of developers in the range of 5.66-8%, depending on the value-added tax levied by each state government. M Venkaiah Naidu, Union urban development minister, has already assured that GST will not lead to any price rise of houses in the country.He also promised that the new regime would maintain zero service tax on affordable housing.

Similarly, the government is also likely to exempt residential rental income from GST. Waman Parkhi, a senior tax consultant at KPMG, said that in the final rules, the Union government may exempt residential rental income from GST. The government has introduced the bill, which will be followed by detailed rules where exceptions and exemptions are likely to be built in, Parikh said.

If the existing system of not taxing rental income from residential property under service tax has to be continued, the same provision of exemption has to be introduced in GST, too.

However, in the act, the government has kept the power to levy GST on all rental income, but is unlikely to impose the tax on individuals renting out houses. Currently, service tax is levied on rental income from commercial property, but not on residential property. The Central GST (CGST) Bill–one of the four legis lations introduced in Parliament–provides that any lease or letting out of a building, including a commercial, industrial, or residential complex for business or commerce, either wholly or partly, is deemed a supply of services.

“Any law has to be read with the rules. It should not be seen in isolation,“ M S Mani, senior director at Deloitte, said. At best, the government can impose GST on residential property taken on rent by companies, which can then use it as a tax credit, Mani said. In any case, GST kicks in only on or above Rs 20 lakh and, only select residential properties fetch that kind of annual rent.

GST, which is likely to be rolled out from July 1, will subsume central excise, service tax, and state VAT among other indirect levies on manufactured goods and services.

GST rate on housing is expected to be pegged at 18%, with a final decision expected to be announced over the next few weeks. A senior official of the urban development ministry clarified that GST will not lead to any additional tax on end users. He said the finance min istry has already accepted it in principle.

Developers and tax experts said this rate will be acceptable to all the stakeholders as it will not lead to any increase in the final price of property. Getamber Anand, president of Credai, said that at present the levy is around 12% of the project cost paid as excise and VAT. In addition, at the time of sale, buyers pay around 6% of the price as service tax and VAT. So, the total net outgo is around 18%.

At present, while levying service tax on a constructed house, an abatement of 60% of the total value is allowed to exclude the value of land and other goods like bricks, cement, and other material from the ambit of service tax. But, under the new regime, this would not be required, a consultant said. Affordable housing is exempt from service tax. To pass on current benefits to buyers, Parkhi said that GST on the ready-to-movein houses in the affordable segment will have to be pegged at zero. The GST Bill has also clearly defined that the tax will not be levied on sale and purchase of immovable property like land, houses, and other real estate assets, which are not under construction. However, stamp duty will continue to be levied.