Tuesday, 27 June 2017

Ensure builders don't charge home buyers higher tax after July 1 Venkaiah Naidu to states

The finance ministry last week had clarified that GST will actually reduce their tax outgo for payments made after July 1


NEW DELHI: Housing minister Venkaiah Naidu has asked chief ministers of all the states to ensure builders don't charge higher tax from home buyers after the goods and services tax (GST) comes into effect from July 1.

In a letter yesterday, the minister said builders asking home buyers who have booked flats and made part payment to make entire payment before July 1 or to face higher tax incidence is against the law.

"I would like to request state governments as well as builders' associations to ensure that no builder/construction company should ask customers to pay higher tax rate on installments to be received after the imposition of GST," Naidu said in his letter.

The finance ministry last week had clarified that GST will actually reduce their tax outgo for payments made after July 1.

"Construction of flats, complex, buildings will have a lower incidence of GST as compared to a plethora of central and state indirect taxes suffered by them under the existing regime," the finance ministry said.

The ministry had also warned that if any builder resorts to such practice, the same can be deemed to be profiteering under section 171 of GST law.

The letter written by Naidu to state CMs highlighted that in the current tax regimes, incidence of central excise duty, value added tax (VAT), entry tax, etc, on construction material are currently borne by the builders, which they pass on to the customers as part of the price charged from them.


"This is not visible to the customer as it forms a part of the cost of the flat. The buyer/customer does not see the embedded taxes on account of cascading and sticking of input taxes in the cost of the flats, etc," it said.

However, under GST, full input credit would be available for offsetting the headline rate of 12% and it is for this reason that refund of overflow of input tax credits to the builder has been disallowed.

Builders body Confederation of Real Estate Developers Association of India (CREDAI) has also urged the government to consider accommodating the abatement of land value in GST regime to ensure that home prices don’t rise.

CREDAI had also highlighted that the GST regime does not eliminate multiple taxation for the real estate sector, and availing input tax credit may not be feasible, thus limiting the capacity of developers to absorb the additional tax burden or pass on the benefits to homebuyers.