Govt asks builders to pass on GST benefits to buyers of flats

The government Thursday asked builders and construction firms to pass on the benefits of lower tax burden under the GST regime to the buyers of property by way of reduced prices/instalments and warned them against asking for full payment of instalment from buyers before GST roll out.

Construction of flats, complex, buildings will have a lower incidence of GST as compared to a plethora of central and state indirect taxes suffered by them under the existing regime, the Central Board of Excise and Customs (CBEC) said.

Central Excise duty is payable on most construction material at12.5%. It is higher in case of cement. In addition, VAT is also payable on construction material at 12.5% to 14.5% in most of the states.

In addition, construction material also are subject to entry tax levied by the states. Input Tax Credit of the above taxes is not currently allowed for payment of service tax. Credit of these taxes is also not available for payment of VAT on construction of flats or buildings under composition scheme. Thus, there is cascading of input taxes on constructed flats, the CBEC said.

This and other service tax levies will change under GST. Under GST, full input credit would be available for offsetting the headline rate of 12%. 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% and it is for this reason that refund of overflow of input tax credits to the builder has been disallowed, it said.

It urged the builders to pass on the benefits of lower tax burden under the GST regime to the buyers of property by way of reduced prices/ instalments. It said that despite this clarity on law position, if any builder resorts to such practice, the same can be deemed to be profiteering under section 171 of GST law.