Impact of GST on Builders

gstBy CA Pathik Shah

Accommodation Times News Services

Indian government is committed to implement Goods and Service Tax (GST) from April, 2017. However, dead line seems to be difficult to achieve.
The real estate industry contributes about 7.8% to India’s GDP and is the second-largest employment generator industry.
GST, as the biggest tax reform in India, will subsume most of the Indirect taxes. Currently, Construction industry is bearing many indirect taxes like VAT, service tax, stamp duty, local body tax, octroi etc.
Here are essential points on to understand impact of GST on builders:
Currently, Construction activity is taxed under VAT for goods portion and Service tax for service portion. In GST, construction activity has been considered as Service only.
Currently, if builder opt for composition scheme then Service tax rate for builder is 4.5% and VAT rate is 1%. So total taxes are 5.5%. But, if GST rate is fixed at 12% or 18% then net tax incidences will increase by around 6.5% or 12.5%.
Currently, in VAT and Service tax, government has specified composite rates after considering land portion in agreement value. In draft GST law, no abatement of land is considered. So government should consider such abatement of land, otherwise GST will become payable on land portion. Government should specify composite scheme in GST also for builders to give deduction of land portion.
Currently, if Builder pays VAT under 1% scheme then VAT input credit is not allowed. In case of Service tax, set off of only input Services are allowed. Set off related to excise paid on capital goods and excise paid on input raw material is not allowed. Similarly, in GST law, only set off related to input services will be allowed and set off related to input and capital goods will not be allowed. GST law is proposed by government to pass on total credit of taxes to next dealer. But in case of builder, government has not considered such proposition in GST law also.
Currently, builder pays octroi and local body tax on purchases. These taxes will be subsumed in GST. So it will reduce cost of builder of purchases.
Currently, VAT is payable on registration of property. Service tax is payable based on amount due after completion of each slab or on amount received as advance. In GST, tax is payable in same system as payable under Service tax. Hence, GST is payable on due basis or on advance received.
Currently, in Service tax, entire consideration is received after occupation certificate then consideration is not liable for service tax. But there is no clarity under VAT laws. In GST, if entire consideration is received after completion certificate then the same would not be liable for GST. Accordingly, building having occupation certificate will not be liable for GST.
In GST, stamp duty, which is levied by the state government on the registration of property, the same has not been subsumed in GST. So buyer will also to pay stamp duty of 5-8% in different states.

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One thought on “Impact of GST on Builders

  1. At the cost of repetition, once more:
    In one’s perspective, quite many of the observations in the write-up do not seem to have take into account/kept in focus the intricate implications of the Del. HC Judgment in Bansals’ case; to which attention has been drawn, repeatedly on this website itself. For an appreciation of the issues yet to be resolved,attempt made in the critique (available in public domain; on Facebook and Linkedin as well)should help.
    Suggest the writer will do well to seriously scout around and mindfully review, having due regard to the feedback- input made available in public interrest; and, if convinced,either by self or after consultation with eminent law experts, at large, come out with a revised write-up, so as to be of any help and proper guidance to the concerned readers / visitors to this website, having common intersts.

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