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Tax Department: Builder can’t force buyers to pay before July 1

  • The indirect tax department cautioned builders not to ask flat buyers to make full advance payment for unfinished realty projects in order to avoid paying higher taxes after implementation of GST.

    The Central Board of Excise and Customs(CBEC) clarified that under the present regime there are a plethora of central and state indirect taxes that are leviable on the construction of buildings, flat, complex. Like, the Central Excise duty payable on most construction material is 12.5%.

    Union Housing Minister M Venkaiah Naidu said it’s illegal for builders to ask buyers

    In his letters addressed to all chief ministers, Naidu has said, "It is expected that the builders will pass on the benefits of lower tax burden as result of GST to the buyers in the form of reduced prices/ installments. Hence, I would like to request the state government as well as builders' associations to ensure that no builder/ construction company ask customers to pay higher tax rate on installments to be received after the imposition of GST

    The Central Board of Excise and Customs (CBEC) Stringent actions will be taken against the buyer if they are found asking buyers to make the entire payment before GST is rolled out. If the builder resorts to such practices it will be considered to profiteering under GST Law.

    full input credit would be available for offsetting the headline rate of 12% proposed under GST. Besides this, VAT is also applicable to construction material at 12.5% to 14.5% in most of the states.Further, construction material also presently suffer entry tax levied by the states.

    Currently, there is a cascading effect of input taxes on constructed flats as the credit of these taxes is not available for payment of VAT on the construction of flats. Likewise, the current rate of service tax on construction of flats, residence, offices etc. is 4.5%. In addition to this, VAT @ 1% is also charged under the composition scheme. Also, input tax credit is not currently allowed for the above-mentioned taxes while paying service tax.  

    The buyer only sees the headline rate of 4.5% and is unable to see embedded taxes on account of cascading effect.

    Though a 4.5% service tax is being replaced by a 12% GST, the advantage is that a number of hidden and cascading taxes will be removed under the new regime.


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