Stamp duty, property tax may stay out of GST

Definition of goods may be changed; amendments to Constitution likely

Real estate may not fully come under the goods and services tax (GST) because the stamp duty and property tax can stay out of its ambit, suggests a presentation prepared for the GST Council.

While work contracts for under-construction houses are under the GST, the stamp duty and land are out of it. India is one of the few countries where sales of under-construction houses are greatly in vogue. Generally, it is constructed houses that are sold in other parts of the world.

Also, bringing real estate in the GST net even partly may require a constitutional amendment, which could take time. The issue here is the lack of clarity about the concept of immovable property.

According to sources, the presentation, prepared for the GST Council in Guwahati on Friday but could not be placed due to paucity of time, says the Constitution does not define immovable property.

Section 2 (52) of the Central GST Act defines goods to mean every type of movable property other than money and securities. Section 2 (102) of the Act defines services to mean anything other than goods, money, and securities.

ALSO READ: Edit: Better and simpler

Where will immovable property fit in? To resolve this issue, the presentation suggests that goods should be defined to include movable and immovable properties, and services should be defined to include anything other than goods.

However, experts say this would require a constitutional amendment. One can’t change the definition of goods to include immovable property under the GST Act only, because there are goods defined in various other Acts as well, say, the Sale of Goods Act and Indian Contract Act, a tax expert points out. 

Similarly, land is a state subject, and a constitutional amendment is required to bring it on the central list, he says.

Abhishek Rastogi of legal consultants Khaitan & Co said immovable property would have to be defined in such a way that it came under the supply rules.

The presentation is also unsure on whether the Constitution is required to be amended but certain that changes in the GST laws would be, sources say. The presentation suggests checking with the Union law ministry and attorney general about constitutional amendment. The presentation will be made at the next Council meeting, slated for early January.

The other issue is the stamp duty. The Indian Stamp Act, 1989, is a central law; rates on land and buildings are decided by states. The stamp duty varies across states in the range of 3-10 per cent. Even in a state, these might vary, as in Maharashtra. Gujarat, Karnataka, Kerala, Rajasthan, and Tamil Nadu have their own stamp laws.

Also, the stamp duty is with reference to documents conveying titles on land and buildings; the GST is on supplies and sales of properties. These are different aspects of taxes, the presentation says.

The presentation says that states should be left free to levy the stamp duty at rates decided by them. Besides, the structure of the property tax should continue as it is, the presentation suggests. It is the local municipal authorities that levy the property tax.

The building cess could be subsumed in the GST as has been done with other kinds of cess, the presentation further says.

M S Mani of consultancy Deloitte said including the entire real estate sector within the GST framework would need significant legislative changes, including a possible constitutional amendment. 

A constitutional amendment requires two-thirds of those present and voting in each House of Parliament. If there is a disagreement, there is no provision for a joint sitting of the two Houses. It may also require ratification by at least half the states. 

The constitution amendment Bill on the GST had altered the powers of the Centre and the states to impose indirect taxes. Both may now impose indirect taxes — from manufacturing to sales of goods as well as sales of services, which was not the case before. 

Currently, petroleum, alcohol, and real estate are outside the levy.

Legislatively, petroleum can be much more easily brought under the GST if the states agree. The Centre and states have been given the powers to impose the existing taxes on petroleum until when the GST Council decides to impose the GST on it.