<b>FAQs:</b> Assessment of an impact on real estate and oil & gas sectors

Frequently asked questions on how will GST impact on real estate and oil & gas sectors

Real estate

How is it impacted by GST?

The real estate sector includes activities such as the sale of completed and under-construction properties. Under the current tax framework, the sale of completed properties is subject only to stamp duty whereas transactions of under-construction properties are subject to stamp duty, VAT and central service tax. VAT rates differ from state to state while the central service tax is charged under an abatement scheme (3.5 per cent for properties under 2,000 sq ft and sold under Rs 1 crore or 4.5 per cent otherwise). Additional levies such as excise duty and Customs duty also exist for under-construction properties.

As the definition of services under the model GST law is very wide, it could render several real estate activities subject to taxation as services. There is still no clarity on rate at which such transactions will be taxed and exactly which of the duties will be subsumed by GST. Experts seem to say the ‘value of land’ and stamp duties will be outside the purview of GST while the others are expected to be within it. 

Will tax rates on transactions increase after GST?

There is still lack of clarity whether sale of under-construction properties will fall under the 12 or 18 per cent tax rate. More importantly, there is no certainty of the extension of the abatement scheme currently applicable to real estate transactions. In case the abatement scheme is withdrawn, there could be drastic increase in taxation of under-construction properties, which would in turn increase the cost of housing significantly. On the other hand, a favourable abatement mechanism and a low slab of taxation may increase the uptake of properties and benefit the economy as a whole.

According to Ashutosh Limaye, national director, research, Jones Lang LaSalle, the quantum of taxation before and after the implementation of GST should be roughly the same to maintain the smooth functioning of the real estate sector.  Confusion also exists on the extent of input credits that the sector will finally enjoy. However, a unified tax regime will definitely lower tax management, compliance and litigation-based expenses for industry players in the coming days. 

Oil & Gas

How will GST affect the sector?

This is a sector that has been kept largely out of the upcoming GST regime. According to Pulak Saha, partner, indirect tax, PwC India, five key components — petroleum crude, high-speed diesel, aviation turbine fuel, natural gas and motor spirit (generally known as petrol) — have been kept outside the purview of GST for an initial period of two years, subject to later inclusion. These five products make up for over 80 per cent of the oil and gas industry as a whole.

According to R S Sharma, former chairman of Oil and Natural Gas Corporation Limited, how CENVAT credits previously afforded to the sector will be calculated are worrying industry players, who want inclusion in the GST regime as a whole.

Why do oil and gas entities want to be included in GST?

Unlike other industries, one of the major reasons why the oil and gas sector wants to be within the GST system is because of the large-scale lowering of taxes. Currently, the industry is often subject to significant state-wise taxation, often over 30 per cent. Experts say it is the states that are adamant on keeping oil and gas outside the GST regime. Advantages of a unified tax system, which will lower compliance and tax management expenses, are further incentives of being within the GST framework. “The industry should intensify its efforts for inclusion of the currently excluded products in GST. The industry should also engage with the government for zero rating of these excluded products,” says Abhishek Jain, tax partner, EY India.

Compiled by Sayan Ghosal