Realtors want different GST rates based on location of projects

KOLKATA: Goods and Services Tax (GST) on under construction projects is hurting cash flow of realtors. Slowdown in bookings and apportionment of land cost value are two pain points.

Along with the stamp duty and the registration fee of 7– 8 per cent, and, a 12 per cent GST, the total tax goes above 19 per cent for an under-construction project. Before the GST was launched, a service tax of approximately 5 per cent was levied and a 5 per cent VAT by some State governments, in addition to the stamp duty and registration fee.

Land cost apportionment

According to Jaxay Shah, National President of CREDAI, the problem arises with the way project costs are broken-up.

Land cost is fixed at one-third of the project value and is kept out of the GST rate. (GST on construction is 18 per cent. Taking out the land cost it comes to 12 per cent.)

But, in many cities and their immediate outskirts, land cost is much higher than this 33.333 per cent. It could go up to as high as 60 per cent in some prime locations. However, the maximum benefit that a developer gets is restricted to just one-third. He does not get any additional refund. Naturally, this cost is passed on to the buyer.

This has resulted in a dip in the number of bookings for under-construction properties. “Buyers can now afford to wait for some time. And there is a liquidity constraint in some markets. There has to be some mechanism available to benefit both the developers and buyers,” Shah told BusinessLine during an interview.

Finishing work before handover is nearly 40 per cent and this additional cost has to be borne by developers now. Large players can afford it, but small developers are finding their resources stretched. In fact, some developers, who were not willing to go record, confirmed to the dip in bookings and said that liquidity too was affected.

Different tax slabs

The developers’ body wants different GST rates based on city being a tier- I, tier- II or tier- III location.

“We are all in favour of GST and support it. But, our appeal is please differentiate the GST levy based on whether it is a tier- I, tier- II or tier- III location. Land cost in Kolkata and Assansol won’t be the same. Then why should there be a single tax rate,” he said.

In fact, CREDAI has already taken up the matter with the Centre. Then there is the issue of stamp duty. Shah said properties are taxed twice — once under GST and then the finished product entails a stamp duty. Ideally there should be one tax.

Shah knows that to merge stamp duty and GST is a difficult task; and both the State government and Centre need to be on the same page on this.

Source- Business Line.

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