Goods and Service Tax (GST) will come, later than sooner. It will impact one and all -individuals, businesses, trade and industry. However, some sectors will be differently affected based on the nature of activities. Select sectors are being discussed here.

Land, Real Estate, Renting

Presently, Real estate transactions are taxed as levy of stamp duty. Renting / leasing transactions are covered under Service Tax. However, long-term leases suffer both, stamp duty and Service Tax and are under litigation presently. Construction activities and works contracts relating to construction / EPC contracts / installations etc are also liable to Service Tax as well as works contract tax (as VAT). As such, this sector is heavily under multiple tax burden.

As of now, it is not clear as to whether real estate / land activities will be brought under the GST net or not as this sector provides major tax revenue to both, centre and states. In many other countries, construction and selling of houses is treated as a commodity and taxed to VAT (e.g., in Canada, New Zealand, South Africa, Australia etc.)

To avoid disputes and have parity, it would be ideal if such transactions are not subjected to multiple taxation, are brought under the ambit of GST and made cenvatable so that businesses may benefit if such property is used for trade or commerce or furtherance thereof.

It appears that stamp duty may not be subsumed in the proposed GST. Excluding real estate transactions may lead to economic distortions as well as classification disputes. At least commercial real estate should be brought under GST to avoid tax cascading of tax on inputs services. If this is done, stamp duty rates could be revisited and accordingly restructured as the purpose of stamp duty being different, it cannot be eliminated all together.

Both GST and stamp duty may be levied on real estate transactions but with moderates rages and Cenvat credit allowed.

Railways

Indian Railways (IR) operates the railways in the country and is administered by Ministry of Railways. While IR has a separate budgetary allocation by way of Rail Budget, its operations are subject to certain direct / indirect tax provisions in terms of direct tax, excise duty, service tax, Swachh Bharat Cess (SBC) etc.

IR operates through zones, divisions and most of public sector undertakings, besides various business models / projects under PPP/JVs. Major revenue sources of IR include freight, passenger fare, advertisement & publicity, land lease, other leases etc. Looking to the expansion, modernization and maintenance of railways, IR is in urgent need of funds or schemes whereby IR can raise funds efficiently at low cost to meet its short term / long term financial requirements.

Following issues need consideration from indirect taxes view point under the GST regime

• High Speed Diesel (HSD)/Light Diesel Oil (LDO) consumed by Indian Railway may be considered as input for the purpose of Cenvat Credit.
• Railway locos/coaches being used in-house (captive consumption) may be exempted from Excise Duty/GST.
• Present Chapter 86 of CETA, 1985 relating to Overhead electric wires and other related equipments may be covered under definition of Capital Goods for allowing Cenvat Credit.
• All projects being executed by Indian Railways through PPP/JV may be exempted from levy of proposed GST etc. to give a boost to Rail Infrastructure Development as well as to boost Indian economy.
• Long term leases meant for development of infrastructure should be considered as transfer of asset.
• Cleaning at Railways Stations, Railways tracks etc. may be included in Sanitation Conservancy and spared from levy of GST in national interest and keeping in mind SBC initiatives.
• Indian Railways may be exempt from payment of GST under reverse charge mechanism / TDS provision.

Banking & Financial Services

Financial services are exempt from levy of VAT / GST in most of the countries. The reason for the same appears to be that the service charges in respect of financial services is generally in the form of margin and is hidden in the form of interest, dividend, annuity payments etc. In India, most of the banking and financial services are exposed to levy of Service Tax but interest is in the negative list. Through the Select Committee of Rajya Sabha also advocated for exclusion of financial services from levy of GST based on the representation of banking industry, it is felt that there does not appear to be any economic logic or reason as to why such services should not suffer levy of GST. However, Cenvat credit should be allowed on such transactions.

Since interest is a return on money lent to borrowers, it may continue to the out of GST net. Presently, leasing companies are burdened with both taxes- VAT as well as Service Tax. In GST regime, it is expected that such anomaly will go and there should not be dispute on the nature of transaction and it would be easier to decide as to when will a transaction in relation to transfer of right to use goods takes place in course of inter-state trade or commerce and where will be situs of transaction in case of transfer of right to use movable goods.