Wednesday, 12 July 2017

Despite anti-profiteering rules, tax on new flats in Nagpur higher under GST

Though not covered by GST, stamp duty is a major tax component in buying a home



NAGPUR: The anti-profiteering provisions of Goods and Services Tax (GST) call for builders to pass on the benefit on account of input tax credit (ITC) to buyers. However, the final benefit to a buyer would be nil, if the stamp duty is also taken into account, say calculations cited by builders and other experts.

Though not covered by GST, stamp duty is a major tax component in buying a home. Loaded with cess for NMC, Metro Rail, NIT and registration charges, it comes to 8.5% of the cost of a house in the city.

In pre-GST era, there was also 1% VAT and 4.5% service tax to account for, taking the entire tax component to 14%, including stamp duty. Now, the GST applicable is 18%, but after passing on the input credit, tax-cum-stamp duty would come to 14.5% or even higher, say realtors here.

This is how it works out, according to calculations by CREDAI, considering the scenario in Nagpur. GST is applicable at a rate of 18%. A deduction of 30% on the sale price is available as abatement towards land cost. This brings the effective base rate of GST to 12%. Now, if input credit is deducted, net GST rate chargeable from the buyer comes anywhere between 7% to 10%. If the stamp duty and registration component is added to GST, the tax would be 15.5% to 18.5%, says Gaurav Agarwala, secretary of CREDAI Nagpur.

In Nagpur, construction cost does not go beyond Rs1,500 a square feet. So, for a flat worth Rs3,000 a square feet, net GST after deducting the credit comes to 7% to 8%. It comes to 8% to 9% for floor price of Rs6,000 to 7,000 per square feet, and nearly 10% for 
flats in the range of 9,000 square feet and above. On this, 8.5% stamp duty would be added, said Agarwala. There is a demand to remove NMC cess, which would give relief of 1%, he said.

The input credit benefit would be less in premium localities since the component of land cost is higher here. The abatement available is fixed at 30% of the sale price. However, in high-end localities, a big chunk of the sale price constitutes the land price with input on materials or services remaining the same everywhere, said Amit Agrawal, a chartered accountant practising on indirect tax front.

The government needs to increase the abatement on land price to at least 50% of the sale price, so that the buyer gets benefits. At present, the builders will also get a transitional input credit for stock purchased before GST. Input credit is a rebate available on indirect tax paid on raw materials and services used during construction. If not passed on, it can lead to action under anti-profiteering laws, said Agrawal.