ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Case for Including Immovable Property in the GST

Including immovable property transactions in the tax base of the proposed Goods and Services Tax will curb the generation of black money while improving tax buoyancy. A model for such inclusion is proposed here. GST could be applied at a concessional rate after providing for suitable exemptions for sale and lease of domestic housing units.

The Supreme Court’s directions on retrieving money deposited illegally in bank accounts abroad has renewed focus on the black economy in the country. The emphasis so far has been on locating the existing stock of black money and bringing it into the formal economy. Perhaps more importance should now be given to controlling the flow of black money by limiting its generation. The Goods and Services Tax (GST) offers a unique opportunity to address this problem by integrating a prime generator of black money – the real estate sector – into the GST base. At present, adequate opportunity to review the GST’s structure exists.

Over the past five years, during the discussions between the centre and the Empowered Committee of State Finance Ministers on the design of the GST, both parties have studiously been ignoring the elephant in the room – the treatment of real estate transactions. The issue is whether transactions in immovable property should be included in the GST tax base or not. The Thirteenth Finance Commission recommended that this be done. This recommendation did not find favour with either the centre or the states. Subsequently, all further discussions on GST design have skirted this important issue. Adequate international experience exists relating to the inclusion of immovable property transactions in the GST base.1 However, India must necessarily carve out its own GST model consistent with its fiscal environment. This article examines the case for including immovable property in the design of the GST, the scope for doing so as well as the options available.

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