Following a recent analysis done by the GST authorities on the top builders of Mumbai, a conclusion has been drawn that most of the builders have been traced claiming higher tax credits. The Input tax credit claimed by them is considerably high as compared to the actual and this is being done by generating fake invoices.
Looking and considering the cruciality of the issue, the Government has taken a major step to reduce the GST and remove ITC from the overall process of taxation done for under construction, viz, the normal housing and affordable housing.
As per the new proposal regarding taxation in housing, GST on normal housing has been reduced from 12% to 5% and in the case of affordable housing, it is reduced from 8% to 1%. After this proposal has hit the news wardrobe this weekend, the reaction has started coming from both the Builders and the Government.
On one side the builders are not happy with the new move and said that removal of the Input tax credit from the loop would directly affect the Retail price of the houses and the builder section is not welcoming the move taken by the Government. They declared this move as Revenue neutral. The same reaction has come from the Government and the Government has also declared that this move is not going to harm even the builders and it is Revenue neutral for Government even.
Further talking about the analysis done on the Builders from Mumbai, the Taxman analysed that a builder who is supposed to be paying a GST of 10.8% on an average, is paying as much a lower GST tax as 2.1%. The Reduction in the GST and removal of the ITC from the taxation criterion in this area would then be encouraging for the anti-profiteering authorities if the price cuts are experienced to be small.
Despite the measures taken by the Council of Lowering of the GST and removal of the ITC from this sector, the taxman looks convinced that tracking tax evasion from this Sector is like impossible.
The Real estate sector is a big source of Black money and the step taken by the GST council to track and check tax evasion by removing ITC from the loop would lead to even more disguise as now there would be no track kept by the Government regarding the funds/materials flow across the sector which would be misleading and would raise issue of different nature.
Making the taxation simpler is the strategy which has been constantly been adopted by the Government in order to check the tax evasion. Just like this, in the case of restaurants, the Government has done similar types of changes. Initially, the GST system was designed to strengthen the tracking by checks and counter-checks which has been later replaced by the simple sales tax system. Such a submission by the Government is really unfortunate as tracking the purchases of less than 150-200 top builders prevailing in the Country overall, is not a difficult task for the Government.
While doing the Analysis regarding Tax evasion, the tax authorities had studied and traced the details of the top 88 builders, the details of which could have been used as a confrontation to the real estate firms and could have been used to unearth their tax evasion.
As the GST officials visit the traders and industry/service sector firms of a particular size to track their GST registration the very same should have been done for builders.
For if a big builder constructs one reasonable-sized building in a year this would lead him for a turnover of more than Rs 15-20 crore. Such turnover is much above the floor limit to pay GST. The prevailing problems in the GST’s IT system led the system unable to take the load of the number of invoices that needed to be uploaded at the same time. But later the government avoided it and decided to remove the system of invoice-matching.
Read Also: All About Invoice Matching & GST Forms Reconciliation Concept
If invoice-matching is not being included as a part of the operations in the system due July 1 and if tax evasion issues constantly increase in restaurant or construction sector or even remain the same, it would definitely be going to deteriorate the Compliance in the overall system resulting in a greater mash up.
