“2017” - Most crucial year for Indian Real Estate

We are ready to welcome 2018 with great zeal and enthusiasm so is the Realty Sector. If we look back, we will find several acts as well as several factors that have drawn an enormous impact on this sector, which must be scrutinized before entering in New Year. Revolutionary acts or bills (like GST, RERA) in 2016, whether they are positive or negative, jolted the country in some way.  If we start from GST (Goods and Services Tax), who doesn’t know about it! GST is levied on all areas, which come under the government of India; however, it was very influential in Real Estate too. Though GST is one tax which includes all direct or indirect taxes, every state needs to pay two GST tax such as CGST (central) and SGST (State).

A perusal of Entry 5 of Schedule III of the CGST Act excludes “sale of land” from the ambit of GST as LAND is a matter of state. Union Government should not contradict the valuation of land because Land is a state subject and circle rates determine after exercise the valuation by the state government and GST will be applied on the supply of construction service which includes both materials and services. Second, residential project is much costlier than commercial project only because of construction cost. There shouldn’t be two different valuations for the same piece of land. Every time buyers end up paying the extra amount to the state government in form of stamp duty besides the payment of GST to Central Government.

India was slipped into chaos when GST was introduced last year but one very important act was also passed on 1st may, 2016 tacitly. That was RERA, Real Estate (Regulation and Development) Act. People were ambivalent about the commencement of this act, but the way it is taking place in realty sector gradually is very commendable. But pros and cons of anything go hand in hand. RERA is the most beneficial and laudable step taken by Central Government to the plight of homebuyers. In the initial phase of this act, all authorities entrusted to central government but as it began to take shape powers distributed within every state.Now each state is responsible to conduct this act, in spite of that its effectiveness is started decreasing. Bunch of states has formed a permanent regulator and rest are waiting vaguely.

Heavy penalties should be imposed for non-compliance with the original RERA act but every state has come up with its own strategy to dilute and modify penalties with less extreme punishments. According to the bill, it is mandatory that 70% amount, which is collected from the buyers for the project, should be used only for the construction of that project. But it’s not necessary that every time one project will need the exact amount of 70% in the construction process. It could be less and the cost of land could be more than 30%. This thing could be mismanagement of resources and funds could be left unutilized.

The central government has also approved the advisory body for Real Estate Regulatory Authority for the right implementation of RERA throughout the country. This step is necessary for the uniform regulation of the act within every state. It will be intrigued to see how this council will work in accordance with the authority.

tags GST    RERA     advisory body