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Over 50 builders face probe for not passing on GST rate cuts

30-Apr-2019
Over 50 builders face probe for not passing on GST rate cuts

The Directorate General of Anti-Profiteering (DGAP) is investigating over 50 property developers for not passing the Goods and Services Tax (GST) benefits to end consumers. These developers include some of India's top builders who are facing probe for profiteering under the GST regime.

The DGAP is trying to ascertain if the real-estate developers made excessive profits by not passing on the benefits of input tax credit available to them to the end consumers, the Livemint reported.

The anti-profiteering body has by far probed about 125 cases and discovered that 60% of them had indulged in profiteering.

Prior to the introduction of GST in July 2017, Central and State governments imposed various taxes on under-construction properties adding up to 5.5-6.5%. The real-estate sector was placed under the 12% tax slab under GST. A lot of builders raised prices accordingly, although they would now claim input tax credit against products and services for which they had already paid tax to the government.

"In the pre-GST era, there was no input tax credit facility on construction materials like cement and steel, which was there in the GST regime (till March-end). This called for a price cut, not a price increase," a source told the news daily.

Meanwhile, the tax credit facility was eventually withdrawn on April 1 for new projects, as the GST council realised that the end consumers were not benefitting from it. The firms facing probe by the DGAP comprise some of the big names in the real estate sector and spread across the country. The inquiry reports are expected over the next few months, the report said.

The National Real Estate Development Council President Niranjan Hiranandani told the daily that there has been a gradual increase in material and labour costs as well as taxes and levies on the real estate industry in recent years. This has affected the overall cost for a homebuyer. "While each project and location will have different calculations, there is no 'gain' as a result of the levies, which came to an end post GST, when one does a simple calculation," said Hiranandani. He further negated the reports that the developers did not pass on the gains on ceasing of levies post GST to buyers.

According to the industry experts, the real estate sector was already coping with poor demand for under-construction properties at the time when the GST came into force. Buyers' preference for ready-to-move-in homes to evade construction delays and zero GST on completed houses further subdued demand for under-construction properties. Meanwhile, the builders were given the input tax credit benefit during that period; so that they could claim credit for taxes they paid on raw materials and services. However, this credit could be availed only on the flats sold until the completion certificate was issued. For the remaining apartments sold after getting the completion certificate, the builders were not permitted to recover those taxes.

Many developers in the prevailing industry slump overlooked anti-profiteering provisions given the complicated nature of the business and the lack of sector-specific guidelines for the real estate sector. This led to them not being able to or finding it tricky to pass on the benefits to end consumers.

Before the GST came into effect in July 2017, the Central Government used to impose a 12.5% excise duty on most construction materials. The State Government also used to levy an additional 12.5-14.5% value-added tax (VAT) on these materials. But, the amount paid towards these taxes could not be availed as credit for adjustment against the 4.5% service tax and the 1-2% VAT (depending on the state) imposed on an under-construction flat sold to the buyer.

As the tax rates on the under-construction properties were lowered from 12% to 5% and on affordable housing projects from 8% to 1%, the input tax credits were also retracted by the GST Council. The federal indirect tax body withdrew the tax credit benefit as it observed that the buyers were not benefitting from it anyway.



Source :- Businesstoday.in

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