Bringing every real estate transactions, including the sale and purchase of land, under the Goods and Services Tax (GST) is a big idea that needs to be worked upon by the GST Council, as this move can make several things possible.
For one, all the real estate deals involving buying and selling of land will be captured in a central database, unlike the assorted information chosen randomly by state bodies. Secondly, the incidence of tax on most real estate deals will be much lower given that state levies like property tax, stamp duty and registration fees will be subsumed under GST. Given that property tax rates vary from state to state, the GST regime will provide uniformity and stability to these deals.
While treatment of capital gains from a taxation point of view on property transactions is still a grey area, this can be sorted out once the much-sullied sector is brought under single impost.
Moreover, by linking real estate transactions to Aadhaar, buyers and sellers can be identified. In commercial property transactions, the companies’ registration numbers will make the deals transparent unmasking the now prevalent anonymity. Companies can no more hide their property deals behind a maze of entries.
Creation of a national database of real estate transactions, registrations, transfers and leases will go a long way in cleaning up the sector. This will also reduce scope for cash or underhand transactions and possibly wipe out benami property deals that camouflage the real buyer or seller.
Under the GST regime, property costs would also come down, given that grey market deals would become virtually non-existent. Going a step further, the Centre may also consider bringing renting and long-term leasing under the national database to identify the real owners of properties on the taxation radar.
For buyers and sellers, paying GST upfront against actual property sale or purchase would be much easier than mobilising a chunk of money in cash. Given that about 40 per cent of real estate deals happen in cash, digitisation would help bring about transparency.
There is a possibility though that the chief ministers may not let go of land deals and property transactions from their purview because a big portion of state revenues come from property tax, stamp duty and registration fees. Hence, the Centre may have to agree to compensate states against possible revenue losses once real estate is brought under GST.
In most states, land allocation for industry projects, special economic zones, export zones, services or specialised farming or housing is done based on larger economic development objectives. Most state politics, especially in districts, taluks, kasbas and villages veer around land holdings, sale and purchase of these assets. Hence, there’s likely to be huge resistance from states for such a proposal.
Taking into the view, the country’s federal character, framers of Indian Constitution rightly put land under the states list. So, if GST regime has to be extended to land deals, a constitutional amendment will have to be adopted in both houses of Parliament and at least two thirds of state legislatures.
For this to happen, a national political consensus, involving major parties in ruling coalition and opposition would be an imperative. Given the huge divide between Narendra Modi- led BJP government and the assorted opposition parties, a consensus could be elusive. The Modi government will do well if they limit the reach of central agencies only to collecting GST on land deals. Even if GST becomes applicable, the prime owner of land resources like water must continue to be the states in the spirit of cooperative federalism.