Under the indirect taxation regime, all other indirect taxes such as VAT, excise duty and service tax will be replaced and the buyer will have to pay a single 12 percent tax, excluding stamp duty on the purchase of house or apartments. This benefit will be available only for the under-construction houses or properties not completed or ready-to-move-in apartments. Entire input credit such as excise duty and Central tax on construction of raw materials will be borne by the developers.
The revenue department is enquiring from the developers and real estate regulators to confirm that the developers do not enhance tax on under construction buildings or projects in new GST Regime. Some real estate developers have already sent emails to buyers or consumers to pay 4.5 percent as service tax before 30th June to avoid paying higher 12 percent taxes in new GST Regime. In this matter, Central Board of Excise and Customs (CBEC) has notified a statement and said that the incidence will remain same and input tax credit will be borne by builders itself.
In this regards, Revenue Secretary Hasmukh Adhia has written a letter to the Housing Minister Nandita Chatterjee, as enquiring the Ministry for informing several stakeholders including developers, state regulators and buyers. Officer said that “It is a fairly strong alert to builders,”
Additionally, the government has forced to implement anti- profiteering provisions and provide benefits to consumers. Officers have informed to the real estate dealers that those projects or buildings which are about to complete or ready for the possession are liable from the buyers or consumers to make all the payments before June. In this case, buyers are not liable to pay higher taxes and the dealers are not entitled to avail input tax credit because all the raw material would have been purchased before the implementation of GST. According to sources, “In such cases, it will be the last installment, 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.
The Finance Ministry in a statement on Thursday said that after the implementation of new GST regime there is a decrease in tax incidence in the construction of flats and buildings. Generally construction material levies 12.5 percent as the central excise tax whereas the industry is facing issues with higher cement taxes. Apart from other taxes such as entry tax 12.5-14.5% VAT is levied by the states. Ministry also added that “Input tax credit of the above taxes is not currently allowed for payment of service tax. The credit of these taxes is also not available for payment of VAT on the construction of flats etc. under composition scheme. Thus, there is cascading of input taxes on constructed flats, etc.,”
Once the GST implements, the tax rate will be 12 percent for the real estate sector and credit will be provided for taxes paid on inputs at every stage which results in lower cost. The ministry said that “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/ installments. It is, therefore, advised to all builders/construction companies that in flats under construction, they should not ask customers to pay the higher tax rate on installments to be received after imposition of GST.”
