GST - Tax consultant remarks

[CHANDRA SEKHAR]

Dear all,

I have referred the statements of IB w.r.t to GST deductions /calculations to a Tax consultant

Below here is his remarks for your information

Dear Sir,

Happy new year

Gone through all the attachments and they are following properly as per the GST notifications. Earlier as per Service tax they deducted 4.5%  upto June 2017 and now as per GST they are deducting 12%. 

But in present GST scenario builder is charging 12% GST and the same they can claim input tax credit on the purchases what they are made. Earlier that input tax credit is not there. So the benefit which they are getting due to GST input tax credit they can pass on to their customers. Most of the builders are not doing that because this agreement is already completed. Whether pass on or not is the discretion of the builder only and no where in GST act it is not provided. 

Relevant notifications and procedures are given below for better understanding.

GST applies to under-construction properties

If you are buying an under-construction property, it is considered as availing a service from the builder; hence, you are supposed to pay GST on it. According to the GST law, construction of a building, complex or a part of it, intended for sale to a buyer, attracts GST on the sale price. However, the tax should not be charged if the property is being bought after the issuance of completion certificate by a government authority or after the property has undergone occupation, which means it is a case of resale.

An under-construction property attracts GST at the rate of 18%. But it is not charged on the entire value of the property; it is charged only on two-third of the value. One-third value of the property is considered as the cost of land. According to CBEC, “effective rate of GST payable on purchase of under-construction residential or commercial properties from builder involving transfer of interest in land or individual share of land to the buyer is 12% with full input tax credit (ITC).”

In case the property that you have bought has been under-construction since 2015 and will get completed in 2018, then the amount paid or invoice raised before 1 July 2017 should have attracted a service tax at the rate of 4.5%. But any payment made towards purchase of the house or property after 1 July 2017 will attract GST at the rate of 12%.

Also, real estate services which do not include transfer of land rights attract GST on the entire amount. According to CBEC, “consideration which doesn’t constitute transfer in land or undivided share of land as part of consideration, such as construction services provided by a sub-contractor to the builder, attract GST at the standard rate of 18% with full ITC.” 

Developer or service providers are expected to pass on the benefit of ITC to homebuyers, which will eventually bring down the total impact of tax on property value.

Regards