The nationwide slowdown and liquidity crunch in the post the COVID-19 world have crippled the real estate and allied industries. Therefore, special measures are crucial in the upcoming Budget 2021 as together these sectors significantly contribute to the Gross Domestic Product (GDP) of the country.
While the Indian Government did offer a timely reprieve by rolling out incentives to support the overall economy, many industries are not still out of the woods. A case in point is the real estate and construction industry that continues to reel under tremendous pressure since last 10 months. Therefore, to help the ailing property market and hundreds of allied industries, we urge the Honourable Finance Minister to consider the following proposals while drafting the upcoming Budget 2021.
Input Tax Credit- While the reduction in the Goods and Services Tax (GST) for the real estate sector in 2020 was a welcome move, the absence of input credit for taxes paid against raw material supplies makes the entire system inefficient. The Government should ponder over in this direction. Even if the GST rate for real estate increases a little with the availability of Input Tax Credits (ITC), the housing sector will become much more affordable for developers and buyers.
Increased incentives for home buyers- Incentivising the ultimate buyer by lowering the tax rates could also add the required fuel into the sector. The present GST rate on under-construction properties is five percent minus the ITC benefit for premium homes (over Rs 45 lakh) and one percent for affordable homes (within Rs 45 lakh). This has helped the sector revive from the challenges imposed by Demonetisation. However, in the post-COVID-19 world, it is crucial that the Government reduces the tax rate further or announces a GST waiver. Even if it is for a short while, it will boost the sector manifold. The move will also help developers focus on project construction and reduce their unnecessary dependency on external financial institutions.
Reliefs sought for the ceramic industry
Tiles industry virtually resonates with the ‘Swachh Bharat’ campaign initiated by the Honourable Prime Minister a few years back. However, despite the ‘essential’ use of the product in sanitation and housing, which has become more relevant post-COVID-19, the current GST rate on ceramic items is 18 percent. This is way more than the desired 12 percent, and the Government must contemplate in this direction. Also, even after 3.5 years of GST rollout, power and fuel cost, which is roughly 40-45 percent of the total cost for heavy industries, is still outside the GST ambit. The inclusion of natural gas under the tax regime is also vital. It is one of the cleanest sources of fuels and massively used in the ceramic industry.
The ceramic industry is a capital-intensive industry where players have been reinvesting the returns year on year to build more capacities to cater to tiles demand. We have also continued to invest in green initiatives such as solar power projects, infrastructure to support gas consumption and water harvesting projects to provide a cleaner and more resilient India to our future generations. Thus, to help the industry continue its efforts in this direction and stay competitive to offer best in class green products to our customers, the reduction in taxes and the inclusion of power and fuel within the GST ambit is mandatory.