The government on Thursday warned the builders of action under the anti-profiteering clause of the Goods and Services Tax (GST) regime if they forced customers to shell out the full payment before July 1 for under-construction structures. The Central Board of Excise and Customs (CBEC) said it had received complaints that customers were told that the payment made after the GST roll-out would face higher tax incidence. “Construction of flats, complex and 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 board said in an attempt to address misinformation. 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.
Currently, the headline rate for construction of flats, residence and offices is 5.5%, which includes 4.5% of service tax and 1% VAT. In some states, the headline rate could be higher at 6.5%. Though the current headline rate looks much lower than the works contract rate under GST, the board said the current rate constitutes embedded taxes on account of cascading and input taxes. Under GST, the works contract services — those involved in construction works — will be taxed at 12%.
“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,” the board said.
Additionally, full input credit would be available under GST for offsetting the headline rate of 12%. 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, the board said.
“The builders are expected to pass on the benefits of lower tax burden under the GST regime to the buyers of property by way of reduced prices/instalments. It is, therefore, advised to all builders/construction companies that in the flats under construction, they should not ask customers to pay higher tax rate on instalments to be received after the imposition of GST,” the board said.