Need Tally
for Clients?

Contact Us! Here

  Tally Auditor

License (Renewal)
  Tally Gold

License Renewal

  Tally Silver

License Renewal
  Tally Silver

New Licence
  Tally Gold

New Licence
 
Open DEMAT Account with in 24 Hrs and start investing now!
« Service Tax »
Open DEMAT Account in 24 hrs
 6 Ways to Save Income Tax On New & Old Tax Regime for FY 2023-24
 Income Tax SFT return filing due date extension: Facility to remain open for a couple of days Latest news
 Income tax filing: Waiting for your Form 16? Here is what you need to know
 Salaried? Rental tax calculation rules you should know before ITR filing in 2023
 What are new tax regime's slabs? Know its limits, benefits, and more
 How much additional tax do you need to pay? ITR filing last date for FY 2019-20
 Income Tax Return Filing: How to file ITR - step-by-step guide
 New Income Tax Slabs for Super Senior Citizens 2023-24: Which rate will apply for ITR now?
 Income Tax Return filing 2023 data: How many Indians aged 18-35 years file ITR?
 Make tax-saving a part of your overall investment plan
 Filing ITR? Maximize Your Tax Savings With These 7 Allowance Benefits

Benefits of GST to home buyers In the next lifetime
October, 27th 2016

The Model GST law which has been shared with the stakeholders shall only add up to the woes of homebuyers unless necessary amendments are brought in. The much promoted and discussed benefit of GST i.e., reduction in costs is not extended to the real estate sector. The ill effects would be equally felt by the industry as well as home buyers.

It is a glaring fact that the most important feature of GST, i.e., seamless transfer of Input Tax Credit is specifically excluded for real estate sector. Section 16(9) of the Model GST Act doesn’t allow developers the set off of the GST paid by him to the contractors who are engaged in construction for the developers. The taxes so paid shall become a cost for the developer which would ultimately be borne by the home buyers.

Further, the provisions of valuation have been so drafted that it would lead to arbitrary double taxation. In the Model GST Law, any material provided by the developer to the contractor for construction of building shall be included in the value of total supply of services by the contactor which would increase the cost. Now, GST shall be paid twice on the same material i.e. - once at the time of purchase by the developer and second when the same shall be included by the contractor for discharging GST which he shall charge from the developers.

Same shall be the fate of various services such as architects and engineers arranged by the developer and they shall also be included in the transaction value of the contractor for the computation of GST liability.

These would cumulatively add up to result into very high GST because of the cascading effect and would thus be a matter of serious concern, for the homebuyers, for after all developers would pass on his cost to them.

The situation is further frustrated by non-exclusion of value of land from the transaction value. In absence of any specific exclusion, GST might be payable on entire value of the flat which shall also include the cost of land. Cost of land is generally huge, especially in metropolitan and other big cities. Presently, there is no VAT/Service tax liability on value of land. However the provisions of Model GST law doesn’t provide for exclusion of land from its purview.

On arithmetic application of above issues to a sample transaction in which a buyer, a developer and a contractor are involved, the outcome may be explained as under:

Assumed that sale value of property is ? 50 lacs which includes land - ? 35lacs, Construction ? 15 lacs [material - ? 10 lacs and services - ? 5lacs].
In the current scenario, sum total of service tax and VAT shall be roughly 12.5% of construction value, which totals to ? 1,87,500 [12.5% of 15lacs].
Whereas under GST, assuming a tax rate of 18%, tax liability shall be ? 9lacs [18% of price of flat- Please note that land is not excluded], which is way too higher than the current tax liability.
This is apart from the cost of input taxes, which builder would bear, since unlike in present scenario, he would not be eligible to claim input tax credit on tax paid by his contractors.

In other terms, one buying a house worth 50lacs should be ready to dole out another more than 7 lacs as tax, purely due to the structuring of law which could have been avoided. This can be avoided even now in case appropriate action is taken by the drafting committee of the GST Council. One must note that the additional tax mentioned above is separate and in addition to the stamp duties and various other fees/ costs involved in a property purchase, which would remain unchanged even under the GST regime.

It is evident that this is a situation which would cripple the entire real estate industry and cause severe chaos and economic disruption.

In the situation that persists, it is imperative that the government must analyze, re-consider and proactively rectify the issues to safeguard and ease the ailing real estate industry as well as the buyers, otherwise the ambitious scheme of our Prime minister, Shri Narendra Modi i.e. “Pradhan Mantri Awas Yojna Housing for all scheme by 2022” might be a failure even before it starts.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2024 CAinINDIA All Right Reserved.
Designed and Developed by Ritz Consulting