1. To ensure builders do not ask home buyers to pay extra after GST rollout, Venkaiah Naidu writes to Madhya Pradesh CM

To ensure builders do not ask home buyers to pay extra after GST rollout, Venkaiah Naidu writes to Madhya Pradesh CM

Venkaiah Naidu has written to Madhya Pradesh chief minister Shivraj Singh Chouhan urging him to ensure that no builder or construction company asks buyers to pay higher tax rate on instalments to be received after the goods and services tax is rolled out on July 1.

New Delhi | Published: June 22, 2017 5:29 AM
Venkaiah Naidu to Madhya Pradesh chief minister, Shivraj Singh Chouhan, construction company higher tax rate, instalments, gst rates Venkaiah Naidu has written to Madhya Pradesh chief minister Shivraj Singh Chouhan urging him to ensure that no builder or construction company asks buyers to pay higher tax rate on instalments to be received after the goods and services tax is rolled out on July 1. (Reuters)

Minister of urban development, housing and urban poverty alleviation Venkaiah Naidu has written to Madhya Pradesh chief minister Shivraj Singh Chouhan urging him to ensure that no builder or construction company asks buyers to pay higher tax rate on instalments to be received after the goods and services tax is rolled out on July 1. Naidu’s move follows a reference from the department of revenue (DoR) saying that numerous complaints have been received by states and the Central Board of Excise and Customs (CBEC) that builders are forcing buyers who have booked flats and have made part payments to make entire payment before the GST roll-out. If not, the buyers would have to suffer higher tax incidence, the builders threatened. On the contrary, Naidu noted citing the DoR, the construction of flats, complexes, buildings, etc will witness comparatively lower incidence of tax in the GST regime than now. “It is expected that the builders will pass on the benefits of lower tax burden as result of GST to the buyers in form of reduced prices/instalments,” Naidu wrote.

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Currently, the tax rate for construction of flats, residence and offices is 5.5%, which includes 4.5% of service tax (post abatement) and 1% VAT. In some states, the rate could be higher at 6.5%. Though the current rate looks much lower than the proposed works contract rate of 12% under GST, the CBEC said the current tax incidence is actually higher due to embedded taxes on account of cascading and input taxes. In the GST regime, full input credit would be available for offsetting the headline rate. “The input credits should take care of the headline rate of 12% and it is for this reason that the refund of overflow of input tax credits to the builder has been disallowed,” Naidu wrote. “Incidence of Central excise duty, VAT, entry tax, etc on construction material is also 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.” Last week, the CBEC had warned the builders of action under the anti-profiteering clause of the GST regime if they forced customers to shell out the full payment before July 1 for under-construction structures. The board warned that if a builder resorts to any malpractice, it would be deemed to be profiteering under Section 171 of the GST law.

 

Writer: Surbhi Prasad 

  1. A
    Abhijit
    Jul 12, 2017 at 4:06 pm
    I am facing similar issue now. I booked apartment in May'17 in Pune. Despite of followups my registration was delayed and we recently did agreement on 4th July'17. Now builder has sent me a demand with 12 GST on agreement value. Before or while registration of apartment builder never mentioned this tax burden and how much it will impact overall cost. With this sudden change in tax application my apartment cost shoot up by 4 Lacs, which is a big shocker for me. I am not aware how to handle this now.
    Reply

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