GST: Regulators asked to ensure no new tax burden on flat buyers

Updates and details for GST: Regulators asked to ensure no new tax burden on flat buyers:

The revenue department is asking real estate regulators in states as well as builders to ensure that developers do not raise the tax burden on under-construction buildings, citing the introduction of GST . Several developers have sent mails to home buyers asking them to pay 4.5% service tax by June 30 to avoid shelling out 12% GST from July. Prompted by this, the Central Board of Excise and Customs issued a statement insisting that the overall incidence will remain unchanged as input tax credit will accrue to builders. In addition, revenue secretary Hasmukh Adhia has written to his counterpart in the housing ministry, Nandita Chatterjee, asking the ministry to advise the state regulators, developers and other stakeholders on the need to ensure that buyers are not asked to cough up more. “It is a fairly strong alert to builders,” said an officer.

In addition, the government has also threatened to invoke the anti-profiteering clause for unjustified increase in prices or for failure to pass on the benefits to consumers. At the same time, officers acknowledged that when it comes to projects that are nearing completion or are ready for possession, buyers should try to clear all the payments by June so that they do not end up paying higher levy given that input credit will not be available to the developer since almost all the raw material would have been bought before GST kicks in. “In such cases, it will be the last instalment, which will be 5-10% of the cost of the apartment. If people pay by the month-end, they will not be subjected to a higher levy,” said a source.

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In a statement on Thursday, the finance ministry said construction of flats and buildings will see a decrease in tax incidence once GST rolls out. Most construction material attract 12.5% central excise, with cement facing a higher levy. In addition, 12.5-14.5% VAT is levied by the states apart from other levies such as entry tax. “Input tax credit of the above taxes is not currently allowed for payment of service tax. Credit of these taxes is also not available for payment of VAT on construction of flats etc. under composition scheme. Thus, there is cascading of input taxes on constructed flats, etc.,” the ministry said.

Once GST kicks in, although the headline rate is 12%, credit will be given for taxes paid on inputs at every stage, resulting in lower cost. “Builders are expected to pass on the benefits of lower tax burden under the GST regime to buyers of property by way of reduced prices/ instalments. It is, therefore, advised to all builders/construction companies that in flats under construction, they should not ask customers to pay higher tax rate on instalments to be received after imposition of GST,” the ministry said.