It will take 3 months for builders to understand GST impact: CREDAI

Panaji r rAfter GST was rolled out on July 1, the tax rate on real-estate sector is 18%. But, 18% is calculated after deducting the cost of land, which is taken as one-third of the final price of the real-estate. This means that two-thirds of 18% GST, which translates to 12% tax rate, in most cases. rThis one rate of GST has absorbed a number of taxes prevailing on real-sector earlier like value-added-tax (VAT), service tax and even central excise on the purchase of material like cement and steel. rHowever, GST comes with input tax credit, which means that you can get your tax burden reduced to the extent tax was paid on all the inputs of the product. rSandip Bhandare, a chartered accountant explained, “If you had unsold stock as on June 30, you can take input tax credit provided purchase invoices are not more than one year old. Supposing a builder had an agreement to sell a flat with a buyer in May 2017. At that time, other taxes like VAT were applicable. So, the builder would have charged the customer all those taxes.” rBhandare continued, “But, the flat was only partly constructed on July 1, when GST came into being. Starting July 1, this builder can take input tax credit on proportionate basis. But, he can’t get such credit, if invoices for any inputs, like cement and steel, are more than a year old. Therefore, it will take some time to see how these issues pan out.” rIn nutshell, this complexity is because agreement to sale is signed between a buyer and a builder much before a flat gets constructed. There can be a time lag of 3 years or even more between signing of an agreement and occupancy of real-estate. rPrabhudessai said, “Suppose I am a builder and I have started a project before July 1. I invested my money, but I didn’t get any input tax credit in the earlier regime. I am getting instalments from buyers after July 1 on which GST is being charged. Now the government says that I can get input tax credit. In such a case, builders will have to build confidence among buyers that benefit of input tax credit will be passed on to them as and when a builder gets it.”