BUDGET 2018 MUST DELIVER!

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Union Budget 2018 will be very crucial, especially for real estate sector, as it would be the last full budget before the Modi government faces re-election in May 2019.

The Modi government introduced a series of reforms, with Real Estate Regulation Act (establishing a regulator, RERA, in each state and UT) and Goods and Services Tax (GST) focused on reviving the real estate sector in particular and the economy in general.

These two measures have brought in transparency and opened up the sector as a secure investment asset class for institutions and individuals alike.

At the same time, the government defined the affordable housing segment clearly to give benefit to the sector. Subsidy under Prime Minister Awas Yojana (PMAY) and tax benefit to developers in construction of affordable housing under Section 80IBA have revived the affordable segment of the sector.

But the sector is still languishing and requires a push at the policy level, a number of consultants like JLL India, ICRA, Grant Thornton, RICS, Naredco (National Real Estate Development Council), and developers have said.

All these reforms in last couple of years have given a solid platform for the real estate sector to perform and contribute to the GDP in a significant manner, but further tweaks in existing laws and additional incentives can give the necessary fillip to the sector to grow faster, NeerajSharma, director of Grant Thornton, said.

The expectation from the forthcoming Union Budget is multifold: Increase the demand and supply, so that the country can realize PM Modi’s dream programme of “Housing for all by 2022”.

Provide additional money in the hands of tax payers, the customers, and make the processes in real estate more seamless and quicker.

Make the real estate attractive for both kinds of customers – those who aspire to buy their first house and those who view it as an attractive investment class.

BUDGET 2018 MUST DELIVER!

As shown in the chart on page1, consultants say that the government should use the sector not only to revive the economy, but also to incentivize individual investments in creating wealth.

ICRA said that expansion of the income tax deductions available to homebuyers can be used to incentivize them, especially the first-time buyers.

MrinalKumar, partner in Shardul Amarchand Mangaldas, said they expect the government to enhance the deduction against the interest paid on home loan taken to buy a house, from the existing cap of Rs 2,00,000 per annum, in Budget 2018.

They also say that the deduction against the interest paid on the home loan taken to invest in the housing sector should be allowed on the actual basis; especially in a market where return on capital from rentals of a residential property is around 2%, tax incentive must be given to promote investment in the sector.

With the floating, young working population on the rise, the requirement for rental housing would increase in the times to come.

TDS on Purchase of Property From Builder

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TDS on Purchase of Property From Builder

In order to check the rampant use of black money in immovable property transactions, the government of India has introduced a law, wherein, the purchaser of a property has to deduct tax at source, while paying the seller for his property.

Properties that are covered

Section 194I A of Income Tax Act, requires a buyer to deduct tax at the rate of 1% of the sale consideration, if the value of the transaction is Rs 50 lakhs or more. This section covers residential property, commercial property, as well as land. However, transactions pertaining to the purchase of agricultural land, are not covered under this provision.

When to deduct the TDS and how to pay it

The purchaser of the property has to deduct the TDS, either at the time of executing the conveyance deed, or at the time of payment of advance in case any advance is being paid before the execution of the conveyance deed. The buyer has to deposit the TDS amount to the credit of the central government, within 30 days from end of  the next month in which the tax is so deducted. For payment of the TDS and furnishing other particulars, you have to fill in Form-cum-challan No 26QB. If a property has more than one buyer and/or seller, you need to fill in separate Form 26QB for each set of buyer and seller. The details of all buyers and sellers, have to be submitted in each Form 26QB.

See also: 

Details required for payment of the TDS

It is the buyer who has to comply with the requirement of deducting TDS and paying the amount to the central government. Detailed instructions for filling up the form and payment of tax can be found at the following link: http://www.incometaxindia.gov.in/Pages/tds-sale-of-immovable-property.aspx

Generally, every person who is responsible for deducting TDS has to obtain a TAN (tax deduction account number). However, in case of TDS on immovable property, the buyer does not have to obtain the TAN. You need to provide details like name, address, PAN, mobile number and email id of the seller as well as buyer, in Form 26QB. You also need to provide the complete address of the property, along with the date of agreement, total value of consideration, date of payment, etc.

The buyer should ensure that the PAN of the seller is correct. Otherwise, the seller will not be able to get the credit for tax deducted by the buyer, as the credit shall flow on the basis of PAN card details furnished in Form 26QB.

The TDS can be paid online or deposited offline, by tendering the physical challan to an authorised bank. The bank will then update the details on the income tax department’s website. Once the TDS has been deposited, the buyer has to download the TDS certificate in Form No 16B, from the website of the Income Tax Department and furnish it to the seller within 15 days.

Lower deduction or nil deduction of TDS

Some TDS provisions provide for the payee to either approach the income tax officer for issue of a certificate, so that the payer shall deduct tax at a lower rate or nil rate, or in some cases the payee can just furnish a declaration for nil TDS. However, there is no such provision for TDS on immovable property. The buyer has to mandatorily deduct tax at source, where the consideration exceeds Rs 50 lakhs, in respect of each set of buyer and seller.

GST Council meet tomorrow: Inclusion of real estate, cut in tax rates may bring cheer before Budget

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Just two weeks before the Budget, GST Council is expected to consider a reduction in tax rates for some items, about 80 going by some reports, and the inclusion of real estate in its 24th meeting tomorrow.

The meeting comes amid continuous dip in GST revenue collection in the last two months. The collection registered a sharp dip to Rs 80,808 crore in November, from Rs 94,063 crore in the launch month in July last year.

Change in tax rates

As Budget can no more tinker with indirect taxes due to implementation of GST, the Council is expected to announce tax concessions and reduction of tax rates on common man items and services, including household goods, agriculture products, housing sector inputs such as cement and steel.

Real estate in GST:

The Council is likely to discuss inclusion of real estate under GST and announce the rollout date for the same. According to some reports, Council may set a 12 per cent rate for the real estate sector and may also decide to subsume stamp duty and registration charges in GST. The likely date for inclusion of real estate under GST could be the start of new financial year, April 1.

“Discussion of real estate inclusion in GST is the key agenda of the GST Council which is scheduled to meet on January 18th,” a senior government official told ANI.

Single GST return form

It may also announce simplification of return filing process. The three return forms — GSTR1, GSTR2 and GSTR3 — may be clubbed into a single form for easier return filing.

This would drastically reduce the compliance burden on the tax payers as they will have to file 12 returns a year instead of 37 returns currently.

Since GST rollout in July, government has extended return filing dates many times.

Rollout of e-way bills

At the last GST council meeting in December, roll out of e-way bill was decided for February 1. So the council may iron out issues in e-way bill mechanism for smooth implementation of e-way bills from next month.

 

Price-monitoring Structure Under GST In The Pipeline

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Price-monitoring Structure Under GST In The Pipeline

The government is considering a price-monitoring mechanism under the proposed goods and services tax (GST) to ensure that the multiple benefits of the landmark reform are passed on and head off any unwarranted price shocks. States are also keen to ensure that the effects of GST provide a demand push to the economy.

“A mechanism will be put in place to keep a tab on prices,” said a senior official aware of deliberations before the GST Council meets later this week to decide on key issues, including the tax rate.

The government is keen to put GST in place on April 1, 2017. The incidence of tax on goods is expected to fall sharply under GST, widely seen as India’s biggest reform since independence.

It will replace multiple central and state taxes, creating a national market. GDP growth is expected to get a boost of up to 2 percentage points from the reform with the bulk of benefits going to industry that will see logistics costs and taxes decline.

The government wants to guard against profiteering by companies that will benefit from seamless input credit or tax on tax. This was among the points raised by some members of the empowered committee of state finance ministers at its last meeting.

Tax experts said a price-monitoring system without legislative backing may not be effective but suggested additional compliances that could be imposed.

“The government clearly wants to ensure that GST does not lead to price increase and inflation. However, I am not sure if any price monitoring system would be effective, particularly if it does not have legislative backing,” said Siddharth Mehta, partner, PwC India.

He said this could lead to complicated compliance paperwork and avoidable disputes between government and industry and the former should instead ensure that the GST rate is moderate and credit system smooth.

LOW TAX RATE

The implementation of GST in some countries fuelled inflation and the government is keen to prevent a similar situation by starting with a low tax rate.

ET view: Broaden the Tax Base

A price monitoring mechanism is fine. But the government should desist frequent tinkering of rates to grant sector specific sops. Some experts favour setting GST rates low to start with. The other option is to have multiple rates. This makes eminent sense and will work in India just as in the EU where VAT rates vary across member states. Including large chunks of the economy in the tax base and keeping sops to the minimum will help lower GST. A wider base gives leeway to lower GST that allows credit for input taxes paid across the value chain, makes production efficient and lowers retail prices.

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