Tax evasion: Real estate coming under GST? Council to decide at Nov meet

Aadhaar could be made mandatory for buying international air tickets, cars

Real estate is often seen as one of the worst sectors in so far as tax evasion is concerned. To address this issue, the government might soon move to bring it within the ambit of goods and services tax (GST). Finance Minister Arun Jaitley indicated this on Thursday while speaking at Harvard University in the US. The GST Council, at its November meeting in Guwahati, would consider covering the sector under the new indirect tax regime, Jaitley said.

While delivering a lecture on tax reforms in the country, he called the taxation system in India one of the least efficient in the world, with a very small tax base. He also hinted at making Aadhaar mandatory for buying a car or international air tickets in the future, taking a cue from the recent Supreme Court judgement.

The GST was rolled out on July 1, replacing a large number of indirect taxes with one unified tax of five rates. Petroleum, real estate, and alcohol were kept out of its ambit.

“The one sector in India where maximum amount of tax evasion and cash generation takes place and which is still outside the GST is real estate. Some of the states have been pressing for it. I believe that there is a strong case to bring real estate into the GST,” Jaitley said.

The stamp duty, which is outside the GST, has complicated the tax structure for real estate. A lot of states had opposed the inclusion of the stamp duty in the GST, as it was a source of revenue for them.

“Some states want; some do not. There are two views. Therefore, by discussion, we would try to reach one view,” he said.

A 12 per cent GST is levied on construction of a complex, building, or civil structure intended for sale, wholly or partly. However, land and other immovable property have been exempted from the GST. If real estate is brought under the GST, the final tax would be almost negligible, Jaitley added.

The FM is on a week-long visit to the US, where he will attend the annual meetings of the International Monetary Fund and the World Bank. Earlier, Jaitley had said bringing real estate under the GST was easier than petroleum. 

Jaitley said there would have to be some link between lifestyle and expenditure, and taxes paid, in the future. “Unquestionably and historically we have had one of the least efficient...  tax systems [of] any country in the world.”

The FM also spoke of making Aadhaar mandatory for buying cars or international air tickets. According to one judicial opinion, this might be treated as an exception to the law of privacy, keeping the revenue interests of the state in mind.

“You have 12-15 million cars being bought every year. You have 20 million people travelling overseas every year. And, if you compare it with the spending data, the base itself is extremely narrow,” he said.

Jaitley also spoke on revenue collection under the GST and demonetisation.

He said in the first month since the GST roll-out, only 5.5 million people had filed returns and 40 per cent assessees had paid no tax. “So even now... the habit of paying a marginal or negligible amount or not paying anything at all is quite prevalent.”

About 95 per cent of taxes in the first two months had come from only 400,000 assessees.  

The FM also described the note ban — in November last year — as a fundamental reform, necessary to make India a more tax-compliant society.

He added systematic efforts to challenge the “shadow economy” were made only recently. “In the last few years, the bulk of the increase in tax payers has not been in terms of number of companies but individuals who are coming into the tax net.”