Input tax credit for real estate will lower prices, says GCCI

Panaji: The seven-member group of ministers (GoM) tasked with boosting the country’s real estate sector has been asked to allow builders to claim input tax credit (ITC). This will not only reduce the tax burden on developers but also potentially pave the way for lower property prices. This suggestion, along with a slew of other recommendations, was taken up for discussion by the GST GoM at its fourth meeting on Tuesday.
The GoM has also been asked to rethink its policy towards construction services used for the development of hotels, homestays, and warehouses. A favourable move to permit ITC on goods and services used in construction will alleviate the current financial crunch, the industry is said to have told the GoM.
“The GST on cement and steel is 28% and 18%, respectively, and the tax outgo has spiked along with the rise in these commodity prices. Developers are not able to claim GST credits on input items, which leads to an escalation in construction costs. Further, it also negates the purpose of GST, which was to remove the cascading impact of taxes,” said Goa Chamber of Commerce & Industry (GCCI) president Shrinivas Dempo. “We recommend that ITC be allowed to reduce the tax burden on the developers.”
GCCI members met chief minister Pramod Sawant, who heads the GoM, and submitted a few recommendations that can streamline the taxation on real estate transactions.
On behalf of the real estate sector, Dempo also urged the GoM to remove the ambiguity over taxation in the case of joint development of a property.
One way to boost the real estate sector would be to permit deferred payment or instalments for GST on unsold apartments and homes.
“The rate of 5% on the reverse charge mechanism on unsold units at occupancy is harsh for builders who are unable to sell the units in a joint development agreement. Unsold inventory itself brings a lot of cashflow issues to the builders, and asking to pay GST at the time of receipt of occupancy certificate becomes a difficulty for the business,” said Dempo.
GCCI has also asked the GoM for clarity on long-term leases and has recommended that long-term leases for more than 30 years should not be viewed as a separate transaction as it is similar to the sale of land.