The services sector has emerged as the most dynamic one globally and remains the key driver of India’s economic growth. India’s service sector growth is much higher than the global average. The global services growth in the post-crisis period (2010-14) at 2.5 per cent was lower than the 3.0 per cent growth in the pre-crisis period (2001-8). India’s services sector growth in the pre-crisis period was 9.3 per cent which declined to 8.6 per cent in the post-crisis period.
The services sector in India remains the most vibrant in terms of contribution to national and state incomes, trade flows, FDI inflows, and employment.
Real estate is an important contributor to the Indian economy. As per the Economic Survey 2016, this sector constituted 8 per cent of India’s GVA in 2014-15 and grew by 9.1 per cent. It also generates significant income and employment owing to large forward and backward linkages through creation of demand in the input sectors and real estate services. However, the construction sector has witnessed a significant slowdown in the last few years, with growth rates of 0.6 per cent in 2012-13, 4.6 per cent in 2013-14, 4.4 per cent in 2014-15 and 3.7 per cent in 2015-16.
The slowdown in sales in the housing sector has resulted in a sharp increase in inventory, especially in the northern and western regions. Despite weak sales and rising inventory, the housing prices in many cities and towns have increased in 2015 due to heavy inflow of capital in the sector over the last few years.
After the introduction of GST, service tax and VAT will be replaced by Central GST and State GST whereas stamp duty will stay unchanged as it is a state subject and is out GST’s purview.
Under the proposed GST law the provisions include:
- Works contract as well as sale of under-construction property deemed as ‘service’.
- Free of cost supplies by recipient to contractor would be liable to GST — the contractor may need to include value of such free supplies in the value of his services
- The restrictions as per the proposed credit rules with regard to construction of immovable property as per section 16(9) include goods and/ or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery; and goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery.
So, the model GST law clearly specifies that works contract will be treated as a service. This will definitely help is determining the taxability of the sector.
The model GST law provides that value of a supply would be the transaction value. However, in absence of any valuation or abatement rules, the tax burden on these transactions will significantly increase.
The restriction on the availment of credit will also adversely impact the sector. However, this interpretation is against the intent of the GST law and I am sure the final GST law will be clear on the credit. So, some amendments need to be made in the proposed GST law to make it favourable to the housing and construction industry.
The author is partner, Sanjay Gupta & Associates, Cost Accountants, and vice-president, ICAI
Guest Author
The author is partner, Sanjay Gupta & Associates, Cost Accountants, and vice president, ICAI
