The Goods and Service Tax is the biggest indirect tax reform in India since 1947. The Constitution (One-Hundred and Twenty-Second) Amendment bill, 2014 aims to bring a change in the Constitution to facilitate the introduction of goods and service tax. In the words of the Finance Minister, Mr. Arun Jaitley, the GST bill will lead to the economic integration of the country. The main objective of GST is to transform the country into a uniform market by breaking the current fiscal barriers between states. Thus, the GST is expected to facilitate a uniform tax on goods and services.
The real estate sector accounts for about 5% of India’s Gross Development Product (GDP). The real estate sector in India is subjected to the levy of multiple indirect taxes like VAT, service tax, excise, and stamp duty, etc. The GST will be an effective substitute of all the multiple taxes.
The real estate transactions have been categorized into the following three categories:
The States impose taxes on the value of goods and materials and the Centre imposes taxation on the value of services. This splitting up of the taxation regime between Centre and States often leads to the problem of double taxation. Moreover, the judiciary’s interpretation of several cases related to taxation has also added up to the problems that are faced by the real estate sector. In the case of L&T, the Supreme Court held that all building contracts should be treated in the nature of work contracts, and hence, should be subjected to sales tax. Again in the Coastal Gujarat Power Limited case, the Supreme Court held even if a consortium is involved in a series of real estate transactions, each of the individual transactions is subjected to stamp duty.  Therefore, when a builder or a developer is involved in the construction of a building, he incurs various costs and a liability to pay several indirect taxes. These taxes collectively have a substantial impact on the prices of flats which the buyers pay.
How the Real Estate sector will benefit from GST?
- Doing away with the parallel existence of VAT and service tax:
In the case of Imagic Creative Pvt Ltd vs Commissioner of Commercial Taxes, the court, while explaining the divide between VAT and service tax, clearly explained that hypothetically if 60% is paid as VAT on a transaction, then the same transaction will be subjected to the levy of 40% of service tax. However, this does not really work in such an easy manner because both the VAT and service tax exist in an unsynchronised manner in the real estate sector, creating the problem of double taxation. However, with the coming of GST in picture; taxes will be imposed on the basis of Revenue Neutral Rate (RNR) as per the Central Goods and Service Tax (CGST) or State Goods and Service Tax. (SGST)
- It will increase the credit flow
Any real estate transaction is not benefitted in particular by the CENVAT credit flow in the present regime. This is because of the several restrictions that are imposed on a real estate transaction when it comes to the utilisation of CENVAT credit. If GST is successfully implemented and free flow of credit is encouraged; it will significantly reduce the cost for the developer as well as the customer.
Analysing the impact of GST on the stakeholders involved
In this section, we will attempt to analyse the impact of GST on the stakeholders involved in any real estate transaction:
Under the GST bill, any construction activity or work contracts or pre completion sale have been covered under the purview of ‘supply of services’. If this is the case, then the tax will be levied on contractual base, doing away the overlapping of VAT and service tax on a certain portion of such contracts like under the existing regime. This will reduce the tax costs.
As has been discussed before that this system will encourage free flow of credits; several indirect taxes like excise duty, octroi, CST, entry tax, which are paid on the procurement of construction materials, will no longer exist as an additional cost on the developer. It will instead be available as a credit for the contractor and developer at the time of procurement stage. This will also reduce the contract price and the resultant impact will be on the buyers because it will substantially reduce the overall prices.
Under the present taxation regime, if a developer constructs a housing complex and gives the apartments on rent, then the developer cannot set off the CENVAT credit which is available on the construction against the service tax which the developer is supposed to pay on the rental income. However, in the present GST bill; the CENVAT credit can be availed as GST if free flow of credit has been encouraged.
On the other hand, imposition of high GST rates like 25-27% will substantially reduce the incremental benefits of the free flow of credit. The stamp duty rate will also be levied the way it is there in the current regime, irrespective of the implementation of the GST bill.
- Special Economic Zones (SEZs)
Under the present regime, SEZs are given the benefits of duty-free import for the purpose of development and maintenance of SEZ units.  They are also exempted from the Minimum Alternate Tax (MAT), central tax, service tax and other taxes levied by the state governments. However, the GST bill is silent on such exemptions and these benefits might not be available as GST will be levied on the procurement of goods. Another interesting feature the GST bill presents is that the amount which is spent on procurement will be eligible for refund; as such it will have a direct influence on the working capital requirements. The bill, however, does not clearly establish if the cost which is spent setting-up the SEZ units, will be eligible for refund or not. The GST structure will also significantly impact the interests of the local suppliers of the SEZs because it is yet to be determined how the suppliers can make representation to avail the benefits of the GST credit.
- State Governments
The GST, in all probabilities, will be a simple law to administer because under the present taxation regime, the construction which is undertaken by the contractor and the sale of the units before their completion by the developer, are subjected to the treatment of separate taxations. GST will be applicable on these transaction along with free flow of credit. Along with the simple administration of the taxation regime, this will also lead to an increase in revenue from this sector without the sector being subjected to double taxation. Moreover, the revenue from stamp duty and registration charges will continue as the present GST system does not subsume them. The government is likely to benefit because it will incur revenue from the real estate transaction as a whole, be it rent on properties or assignment of rights.
The discussion above clearly establishes that the implementation of GST will have a mixed impact on the various stakeholders involved therein. The present GST bill leaves certain issues unattended like the impact of the imposition of high revenue neutral rates of 25-27%. Again, if free flow of credit is not encouraged in the real estate sector, then the benefit of the CENVAT credit cannot be availed by the developer or the contractor, and on the other hand, the high RNR rate will adversely impact the buyers as well. The GST structure does not include in its purview the value of divided/undivided interest in land. Therefore, the process of determination of the ‘valuation of land’ will definitely have a significant impact on the real estate sector.
 http://indianexpress.com/article/business/business-others/gst-will-lead-to-economic-integration-of-india-arun-jaitley/ ; Retrieved on August 19, 2016.
 Notification No. 26/2012
 Chief Controlling Revenue Authority v Coastal Gujarat Power Limited, Civil Appeal No. 6054 of 2015 arising out of S.L.P. (C) No. 32319 of 2013
Under Section 10AA of the Income Tax Act, SEZs are given 100 per cent tax exemption for the first five years, 50 per cent for the next five years and 50 per cent of the ploughed-back export profit for the next five years.