Showing posts with label indian economy. Show all posts
Showing posts with label indian economy. Show all posts

Friday, May 12, 2017

How will GST Impact the Indian Real Estate Sector

GST

Impact of The Goods & Service Tax - GST 


The most ground-breaking tax connected reforms in some decades to be seen in India is the Goods and Service Tax – GST that will eradicate the incompatible as well as mounting taxation arrangements which have confused various industries over the last few decades.

 It would positively tend to have a deep effect on the economic prospects of India. An individual indirect tax covering the goods and services would tend to increased tax collection in the long run by making it simple for retailers together with many other businesses in complying as well as regulating the overall taxation stages. The favourable outcome of this new taxation administration would only become apparent within 2-3 years after its implementation.

 In spite of the announcement of the tax structure of the goods and services tax – GST, a lot of speculation would be there with regards to tax rate being applicable to the real estate as well as construction industry. It would be untimely to comment at this point of time since the tax rate has not yet been decided. Prospects for the real estate would be in the bracket of 12% but the GST rate does not seem to be the only significant element.

GST – Tax Neutral/Tad Adverse

It is a known fact that real estate sector tends to play a vital part in employment generation in India and ranks second after agriculture. The significance of real estate segment is comprehended with its average 5-6% GDP contribution as well as stimulating demand for over 250 subsidiary industries.

The real estate segment is said to have a considerable growth of about 22% in its private equity reserves from 2015 to 2016. During the third quarter of 2016, there was an increase of 9% in investments for residential properties from previous quarter.

The reduction rules for developers applicable under service tax system together with the input tax credit facility would be determined if the effective tax incidence on real estate would be lower or higher under GST. Meritoriously the composition system enables reduction against the cost of land up to 75% of the cost of the house for residential units at a price under I crores IND and less than 2000 sq.ft. tends to make the effective rate at 3,75%.The reduction in other cases seems to go below 70% thus making the effective rate at 4% which will go a long way in defining whether GST would be tax neutral or tax adverse in the case of real estate.

Uncertainties to Rental Housing Market

Some clarity on reduction for under construction houses as well as input tax credit benefit for developers has been offered by the government. Considering the residential property sector, the sales have not only been obstructed by tax rates but also by sentiment as well as on account of the trust deficit that the Real Estate Regulation & Development Act or RERA, it now seeks to report. Under GST, if cost tends to go higher, the lower prevailing current home loan rates to some extent could ease the impact.

Investors and buyers together with the developers are reasonably anxious that the final ticket size of the homes would escalate if the Government levies GST at 12% as against the prevailing service tax rates. Further clarity on this is anticipated by the developers though they are aware that it is in the interest of their business in keeping ticket sizes range-bound.

Developing market dynamics have already made a change in a way the developers tend to work. Other uncertainties relate to the rental housing market that would logically be the obstructed if the Government tend to tax residential leases under GST.

Rental Profit/Capital Value Appreciation

The common anxiety is that should this occur, the rental housing segment would see a big slump over the medium-term as residential leases are not taxed at all presently. It is appropriate to note that the residential leasing could be an essential demand that would not disappear just by increased taxes.

 Undoubtedly, we could be viewing at rental lack of progress or marginal decline while the market readapts to the new dynamics that GST would permeate. Rental housing demand however tends to be sticky and end-user-driven in nature. Hence we are certainly not watching for major slump in this sector due to GST even if it does not tend to tax residential leases.

Nonetheless it is true that most of the investors in the residential segment do not tend to invest for rental profit but for capital value appreciation and so reduced rental profits would not freely control sentiment. With regards to the impact of GST on the commercial office real estate market, with the prevailing service tax for commercial leases at 15%, GST overall would be probably neutral.

Presently reasonably priced housing has been exempted from service tax and it is possible that the government would come out with a clarification with regards to the applicability or tend to continue the exemption under the GST.

Wednesday, May 3, 2017

GST not to increase compliance burden, says Hasmukh Adhia

Hasmukh Adhia
GST Not to Increase Compliance Load

Hasmukj Adhia, Revenue Secretary has informed that the GST would not increase compliance load on assessees, regarding the same are misdirected. He had stated while addressing netizens on Facebook that several people are of the opinion that the implementation of GST would end in increase in compliance cost which is totally misplaced.

 While explaining the basis he had said that people need tto keep various law books for the purpose of filing return for different taxes such as VAT, Excise etc in the prevailing taxation system. He went on to added that with the roll out of GST, there would be individual tax as well as accounting for which it would be quite easy.

It could be done via an offline excel form provided by the GST Network and if one intends to utilise this form for the purpose of maintaining record on the purchase and sales, he could utilise this for filing return and hence compliance would be reduced. Adhia leading the implementation of the Goods and Services Tax – GST had mentioned that the finance ministry has been gearing up for its roll out and a training comprising of five days has been already given to the officers.

GST to Be Implemented in July

He has also informed that an IT training is in the process for them. The intention of the government is to implement the GST from July 1 and the GST Council controlled by Finance Minister, Arun Jaitley had settled four rate classifications of 5%, 12%, 18% and 28% on merging levies such as central excise, service tax and VAT.

 Addition would be done by calculating the overall incidence of present taxation - central plus state levies and thereafter placing the good or service in the tax bracket nearest to it. Adhia also informed that the indirect tax load would come down in the new GST system. He said that there would be several goods and service that would be out of GST and would therefore offer advantage to common man with regards to taxes and the roll out GST would be tax neutral or there could be decrease of tax burden.

Regarding traders, he also informed that the tax filing would begin from the starting point level of Rs 20 lakh where the registration below the inception limit would not be essential.

No Harmonized System of Nomenclature 

He also informed that under PAN within one state only one registration would be permitted. For one business, no other registration would be permitted though there would be a need of single registration with regards to supply of production for more than one state.

For the purpose of coding, he mentioned that no Harmonized System of Nomenclature – HSN code would be needed in case of business turnover of Rs 1.5 crore. The Revenue Secretary also mentioned that on petroleum as well as alcohol products under GST, would not be under the new tax system till the time the GST Council tends to impose a rate. He added that in the near future, if the state agrees then petrol, alcohol together with natural gas would be coming under GST.

Friday, November 11, 2016

Rs 500, Rs 1000 Notes Abolished

Indian Currency abolished

Demonetization of Rs 500 & Rs 1000 Rupee Notes


In an important effect to check black money, the Prime Minister has announced demonetization of Rs 500 and 1000 rupee notes with effect from midnight of November 9 which makes these notes invalid on black money, corruption and fake currency.The decision of PM Narendra Modi to eliminate Rs. 500 and Rs. 1000 rupee notes with a view to control the flow of black money has been mentioned by almost all in Bollywood.

The decision had been effective abolishing Rs 500 and Rs 1000 rupee value notes as legitimate tender. To get to know on the implications on this financial decision, an interaction had been conducted with leading film exhibitor Akshaye Rathi who mentioned that the impact could be of two levels namely micro and macro.

With regards to film that would be coming in the future, it was essential to comprehend the pattern of audience which could be beyond the metros.In areas like Bengaluru, Delhi, Kolkata, Mumbai and Pune, individuals seem to be comfortable in utilising plastic money as well as online transactions.

However there is a massive population which is beyond the metros who do not approve of utilising plastic money. Then there is a still bigger crowd which goes to the bank and withdraw money, making their payment through cash.

Impact on Industry – Positive


People in places such as Kanpur and Satara tend to go to the bank on the first day of the month for withdrawal of cash for their monthly expenditure where the payment is done by cash. Hence, individuals would find it difficult in being unable to use the denominations of 500 and 1000 rupees when they go for a movie or intend to dine out with their family or friends.

Carrying a few five or hundred rupee notes tends to be much easier than carrying a good amount of hundred rupee notes in your wallet which could cause a bit of inconvenience to the individuals. With regards to Bollywood, Akshaye envisions the decision affecting the industry crowd in a positive manner and is of the belief that it would go a long way in eliminating bribes as well as corruption. He stated that the impact on the industry would be a very positive one.

A producer shooting is troubled by several entities such as organisations, political outfits and associations who tend to come and upset the shoot, by asking for bribe. The producer then provides them with the option of card or cheque payments. With this decision, all these bribes and loopholes have been stopped since one cannot pay a bribe with hundred rupee notes.

New Notes of Rs 2000 & Rs 500


Modi has mentioned that people having Rs 500 and Rs 1000 could deposit them in their bank and post office account from November 10 to December 30. He also mentioned that the notes would not be legal tender from midnight of November 9 and that they would be just useless piece of paper.

But he also added that all notes in the lower demolition of Rs 100, Rs 50, Rs 20, Rs 10, Rs 5, Rs 2 and Re 1 together with the coins would continue being valid.

He informed that new notes of Rs 2000 together with Rs 500 would be introduced and that there would be no modification of any kind of currency exchange be it DD. Cheque, payment through credit/debit card etc.

Tuesday, December 15, 2015

RBI Rejects Bids at Bond Sale for Second Consecutive Week

Bond sale

RBI Rejects Bids at Government Bond Sale


The Reserve Bank of India rejected all the bids at its 150 billion rupee government bond sale including the benchmark 10 year debt, recently, marking the second week consecutively when it did not accept some of the bids. The RBI had only accepted 49.4 billion rupees worth of bids for its sale of 70 billion rupee of 2025 bonds and had accepted only 22.9 billion rupees of the 30 billion rupees worth of 2034 bonds that were being sold.

 The balance three bonds had been totally allotted. RBI has the option of not accepting all bids at the debt auctions through a procedure known as a `devolvement’, which tends to lead underwriting dealers to purchase some of the shortfall in undersubscribed tenders at determined cut-off yield. According to a treasurer at HDFC, Ashish Parthasarthy, he comments that `the yield may not be acceptable and they would find it too high’.The devolvement has come up when the RBI is tied up in a complicated balancing act with domestic yields in order to keep the volatility away from its bond markets ahead of the policy decision of the Federal Reserve this month.

Fourth Auction with Weak Bids/High Yields


This seems to be the fourth auction which has seen weak bids and demands at high yield levels from the market. The RBI may not have been relaxed giving a cut-off which did not reflect its accommodative monetary position, according to bond traders.

The government is scheduled to raise Rs 15,000 crore by allotting four bonds at the weekly auction. Presently the craving for bonds is quite low in the market and several investors have incurred losses after yields shot up sharply after the policy statement and are now being careful according to the managing director of ICICI Securities Primary Dealership, B. Prasanna. Government bond earnings have increased by at least 10 basis points over the last one week as an aggressive policy statement from RBI, the effects of global bond sell-off earlier in the month as well as anxieties over domestic inflation that kept several buyers at bay. The 10 year benchmark 7.72%, 2025 bond yield closed at 7.8%, up 10 bps from the earlier week. The bond has suffered losses for all investors who had bought it at the maiden auction in May.

Last Devolvement – June 12


In the policy of June, the RBI had reduced its repo rate by 25 bps, but had raised it inflation forecast to 6% for January and had commented that it has frontloaded its rate cuts. This however brought about expectations of the future rate cuts sharply down in the bond market. Moreover, the bond yields from US to Europe has also increased to multi-month highs since the investors deserted fixed income in the midst of rising oil prices as well as the forthcoming rate hike by the US Federal Reserve.

The last devolvement of RBI had been on June 12, when the sentiments seemed negative owing to high inflation reading. An official aware of the central bank’s decision in explaining the devolvement had informed that `the bids had come at much higher yields’. He had added that the central bank was also certain in not devolving in too big an amount to avoid destabilising the markets.

Wednesday, January 28, 2015

World Bank Forecasts India to Become World’s Fastest Growing Economy By 2017


India is on the verge of becoming the fastest growing big economy in the world in 2017. World Bank has released a forecast which shows India edging past the China at an estimated growth rate of 7% in its GDP whereas the rival neighbour China would growth grow at 6.9%. This report was published in the World Bank’s flagship publication called Global Economic Reports. This influential report even warns India that having any possible slackening in the reform momentum would result in slowing down in economy growth and its pace of recovery.

Deceleration in China’s Economy A Boon For Indian Economy

For several years in a row China has projected itself as one of the fastest growing economy but in coming years in expected to slow down to 7.1%. Last year it was growing at a robust pace of 7.4% and it is going decelerate further to 7% and by 2017 it will touch the 6.9% mark. The relative sizes of the two giant economies of Asia shows a wide gap. China’s economy was at $9.2 trillion whereas India’s $1.87 trillion which certainly means that India had a really long way to go. World Bank report has characterised the China’s eventual deceleration as a carefully managed slowdown

India Expected To Touch 7% Growth Rate Earlier Than Expected

The Bangkok based United Nations Economic and Social Commission for Asia and the Pacific commonly known as ESCAP have published separate report which projects the growth of Indian economy at the pace of 6.4% for the current year. International Investment bank Golsman Sachs shows another turn and expects that India would achieve the projected growth rate of 7% a year in advance and it nudges past China smoothly.

Indian economy would be helped by the steep falling in oil prices and other energy commodities as well as by the low interest rate in developing countries. India should employ this falling oil price window by ushering the fiscal and structural reforms and boosts it long-run growth as well as inclusive development. Both ESCAP and the World Bank have rightly pointed towards cutting fuel subsidies and diverting funds for the financial sustainable development.

Global Growth Rate To Rise

Global growth rate is expected to rise by 0.4% to register 3.0% in 2015 from 2.6 in 2014. Further reports suggest it will rise to 3.3% in 2017. Developing countries is expected show a growth rate of 2.2% this year from 1.8% in 2014 and by 2.3 % in 2017.

ESCAP report states that India is very genuinely identified the infrastructural development as the key element for economy growth but it does face shortage of government resources. ESCAP therefore recommends for giving importance to private sector in infrastructure development as well as collaborating with government. World Bank report states that reforms and regulations by the government in India should aim towards boosting foreign direct investment. Increase in investments would help the nation in achieving the growth rate of 7% by 2016.

Saturday, August 31, 2013

U.S. monetary policy brings down the Indian rupee?



The Indian currency has again reached a record low on Tuesday. Like other developing countries, it suffers including expectations of investors who expect a shift from the Fed. The Indian giant shuddered. With the collapse of its currency, returns the specter of a crisis it had known early in 1991. Prime Minister Manmohan Singh had himself risen, claiming that this new crisis was not of the same order. Moreover, the crisis of the rupee displays India is experiencing a slowdown - albeit relative - its growth. In this context, the question of advancing the general elections before the month of May 2014 was again discussed among the members of the Indian political class. How to explain this monetary crisis going to translate into political crisis? The Indian currency Monday reached its lowest level. On Tuesday, the dollar traded as against Rs 64.11 earlier in the day. The day before, she had gone through the floor dropping to 63.22 rupees to the dollar. More broadly, in two years, the country's currency has lost more than 40% of its value since July 2013. Main reasons given by most analysts: the fear of expected monetary tightening of U.S.

 The impact of a possible end of the buyback of bonds by the Fed is already being felt in the last two months. Capital hesitates between the United States and emerging countries. When the shift in U.S. monetary policy was announced, the capital flows are rerouted to the dollar. The Indian stock market actually costs, “there is still a month; the SENSEX index exceeded 20,000 points," points out the researcher. He thus lost 7% in three days, falling below 18,000 points before rising slightly at the close on Tuesday. In India the deficit of current account is the source of all problems. The deficit amounted to about 4.5 % of gross domestic product, according to a note from the Bureau of Economic Analysis of BNP Paribas. To this must be added a context of relatively slow growth. For the 2012-2013 year, India's central bank has lowered its growth estimate from 5.8% to 5.5%. Well below the 9 % increase in GDP experienced by the country during the previous years.


 In addition, “even in the field of foreign direct investment, we feel a hesitation. Whenever the election is tight, investors may worry about a shift," says economist Center Future Studies and International Information. Faced with this situation, the Reserve Bank of India (RBI) would have little leeway. This is “very embarrassed because political control of the money supply can have a negative impact on growth and investment. It is therefore obliged to act in short strokes. The RBI has, for example tried to halt the decline of the rupee e.g. preventing imports of gold, limiting to $ 75,000 per year instead of 200,000 the amount that can leave the Indians in the country but also in controlling purchases estates abroad. India is not alone in feeling the effects of investor expectations about the U.S. monetary policy. Other emerging market currencies were also affected, such as the Brazil and Indonesia. Finally, more broadly, the crisis itself could amplify these phenomena. India has no role in driving the region since this has the effect of weakening the economy, there is however a risk of indirect contagion in other emerging countries, especially China.

Friday, August 30, 2013

Record low for the Rupee, The Stock Market Collapses!



The IMF said Thursday that economic "vulnerability" of India had recently worsened, while refusing to "speculate" on the possibility of an application for financial assistance in the country. "The combination of large budget deficits and current account balance, the persistence of high inflation and dependence namely capital inflows are the old vulnerabilities that have increased" recently said Gerry Rice, spokesman for the international Monetary Fund. Faced with the prospect of a tightening of U.S. monetary policy, India has seen foreign capital flowing back, plunging the value of its currency against the dollar. On Wednesday, the rupee fell to a record low before recovering Thursday. According to Rice, the deterioration of the Indian economy "clearly affected market confidence" and is a "challenge" to the authorities. "This is also an opportunity for the Government to continue its political efforts on a number of fronts," he said at a press conference in Washington, without giving further details. Wednesday evening, the Reserve Bank of India (RBI) has announced it will provide dollars directly to oil companies, via a separate establishment, to calm the volatility in the foreign exchange market. Asked about a possible Indian request for financial assistance, IMF spokesman, however, declined "to speculate." India had appealed to the Fund in 1991 to deal with a crisis in its balance of payments, which measures including the influx of foreign capital.