NEW DELHI: Are you planning to invest in a house? Wait till the government rolls out the new universal tax regime, in all probability by next month, and you might end up saving a substantial amount in the form of taxes.
The Finance Ministry has issued a clarification directing construction companies to pass on benefits of lower tax burden under the GST regime to consumers in the form of reduced prices and instalments. Else, they can be prosecuted for profiteering under Section 171 of the GST law.
The clarification has come after the CBEC and States received several complaints that customers who have booked flats by making part payments were being asked by builders to deposit entire amounts before July 1 or face higher taxation for payments made later.
“This is against the GST law,” said a Finance Ministry statement.
“Construction of flats, complex, buildings will have a lower incidence of GST as compared to a plethora of indirect Central and State taxes suffered by them under the existing regime,” the statement added.
Currently, there is a cascading of input taxes on constructed flats. For instance, a Central Excise duty is payable on most construction material at the rate of 12.5 per cent, and it’s higher in the case of cement. In addition, most States levy an Entry Tax and Value Added Tax in the range of 12.5 - 14.5 per cent on most building materials.
“As a result, incidence of Central Excise duty, VAT and Entry Tax on construction material is currently borne by builders, which they pass on to the customers as part of the price charged from them. This is not visible to the customer as it forms a part of the cost.” This, the ministry adds, will change under the GST regime.
The builders are expected to pass on the benefits of lower tax burden under the GST regime to the buyers. “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.”
“The Finance Minister has also made it clear. Any tax credit that the builder gets after GST is implemented has to be passed on 100 per cent to the consumer,” says Samantak Das, Chief Economist at Research Knight Frank India.
“This is a great move and will help clarify the cloud hovering around the consumer that they may have to pay higher taxes.”
Reality check Example
Cost of buying house: Rs 10 lakh
Input tax: Rs 32,000
Tax paid on final product (including input tax): D1 lakh
Tax paid under GST: Rs 68,000
12.5% Central excise duty
Entry tax for construction materials (charges vary from state to state)
4.5% Service tax
1% VAT under composition scheme
■ Full input credit would be available for input taxes
■ So input taxes embedded in the flat can’t form a part of the cost of the flat
■ Builders must pass on the benefits of lower tax burden under GST to buyers by way of reduced prices