Several states are backing finance minister Arun Jaitley’s recent suggestion that GST is the answer to tax evasion and flow of unaccounted wealth in the real estate sector

Momentum is building for inclusion of real estate within the ambit of the goods and services tax (GST) with several states backing finance minister Arun Jaitley’s recent suggestion that the new indirect tax system was the answer to tax evasion and flow of unaccounted wealth in the sector.

The states of Delhi, Jammu and Kashmir and Bihar have already signalled their support for Jaitley’s suggestion, in the run-up to the GST Council meeting on 9 November in Guwahati, which is likely to look into the issue.

Jaitley said in a lecture at Harvard University last Wednesday that real estate was a sector where “maximum amount of tax evasion and cash generation takes place and which is still outside the GST”. The minister said some states have been pressing for real estate’s inclusion in GST and that the federal tax body, the GST Council, will discuss it at its next meeting, PTI reported from Washington.

Bihar chief minister Nitish Kumar supported the proposal on Monday, saying the state always supported real estate’s inclusion in GST and other measures that targeted black money holders. “In fact, Bihar was among the first states to have raised such a demand,” PTI reported from Patna, quoting Kumar.

Jammu and Kashmir has already set up an internal panel to examine the inclusion of land, petrol, electricity and liquor within state GST (SGST), on which a decision is expected in the state’s annual budget in January, Mint reported on Tuesday. Delhi deputy chief minister Manish Sisodia too wrote to Jaitley, urging that the real estate sector be brought under the ambit of GST.

Implementation of the proposal, however, would need an amendment to the Constitution and resolving some technical challenges which could be time consuming, experts said.

At present, taxation of land and buildings is part of the state list in schedule seven of the Constitution. Allowing the central government taxation rights on the land and buildings would need an amendment to the Constitution. Also, how GST might apply when a consumer resells land would need clarity as the final consumer may not have GST registration at the time of purchase.

“Inclusion of real estate in GST will bring more transparency and reduce the cascading of taxes. It may be a good idea for the GST Council to bring out a white paper on the subject,” said Bipin Sapra, tax partner at consulting firm EY.

“Bringing the real estate sector under GST may take time as this will require several legislative processes to be completed,” said M.S.Mani, partner-GST at Deloitte India. “Once the present compliance challenges confronting GST are overcome and clarity emerges on the GST revenues and shortfalls, if any, the process of widening the framework of GST should begin,” he added.