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The Constitution Bill for the introduction of the Goods and Services Tax (GST) in India, which was approved by President Pranab Mukherjee on September 8, was notified as the Constitution (101st Amendment) Act, 2016, on September 10. According to Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A from September 12.

The real estate sector is estimated to account for about five per cent of India’s gross domestic product (GDP) and is considered the second-largest employer in the country, according to an E&Y report from 2015.

GST could bring in transparency in the real estate sector, it may reduce cost of home ownership, especially if GST rate is lower than current rates put together. It could also lead to lower compliance costs and input costs for builders.

The direct impact of GST on real estate, in terms of tax outflow for developers and consumers, will depend on whether the final GST rate is more or less than the taxes paid currently.

Currently, a real estate developer incurs various taxes during the construction of a project including value-added tax (VAT), central sales tax, customs duties, and service tax among others. For commercial property, GST will reduce taxation as developers will be able to get input credit of GST paid for construction services against the GST charged on lease rentals.

GST will also bring in much-needed transparency into the sector, which is one of the most opaque sector devoid of any regulation. The government recently cleared Real Estate Regulation Bill, 2016, but it will take a year before it is implemented across all states.

The GST will enable a smooth and seamless distribution network in India which will lead to in-time delivery of building material across India.

 

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