You are here: Home » PTI Stories » National » News
Business Standard

Govt asks builders to pass on GST benefit to home buyers

Press Trust of India  |  New Delhi 

The today warned builders of stringent action for asking customers to make entire payment before July 1, the day of roll out, and asked them to pass on the benefits of lower under the new regime by way of reduced prices/installments.

Construction of flats, complex, buildings will have a lower incidence of Goods and Services (GST) as compared to a plethora of central and state indirect taxes suffered by them currently, the ministry said in a statement.

The department and states have received complaints that the people who have booked flats and made part payment "are being asked" to make entire payment before July 1, 2017 or to face higher incidence for payment made there after.

"This is against the law," the ministry said.

The works contract service rate under is 12 per cent for under-construction flats, complexes and buildings.

"The builders are expected to pass on the benefits of lower burden under the regime to the buyers of property by way of reduced prices/installments.

"It is, therefore, advised to all builders / construction companies that in the flats under construction, they should not ask customers to pay higher rate on instalments to be received after imposition of GST," the ministry said.

It also warned that if any builder resorts to such practices, "the same can be deemed to be profiteering under section 171 of law".

A committee would be set up to look into the complaints with regard to the anti-profiteering clause that seeks to prevent companies from making undue gains post rollout.

Elaborating further, the ministry said central excise duty is payable on construction material at the rate of 12.5 per cent. It is higher in case of cement. In addition, VAT is also payable on construction material in several states.

Besides, construction material also attract other taxes.

Credit of these taxes is also not available for payment of VAT on construction of flats under composition scheme.

Thus, there is cascading of input taxes on constructed flats, the ministry added.

"As a result, incidence of Central Excise duty, VAT, Entry Tax, 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," it said.

Further the current service on construction of flats, residences, and offices is 4.5 per cent and VAT is 1 per cent.

"What the customer does not see is the embedded taxes on account of cascading and sticking of input taxes in the cost of the flats," it said.

This will change under as full input credit would be available for offsetting the headline rate of 12 per cent.

"As a result, the input taxes embedded in the flat will not (and should not) form a part of the cost of the flat. The input credits should take care of the headline rate of 12 per cent...," it said.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, June 15 2017. 20:48 IST