More than 50 property developers, including some of India’s top builders, are being investigated for profiteering under the goods and services tax (GST) regime, said a person aware of the development.

The investigation by the Directorate General of Anti-Profiteering (DGAP) is trying to find out if the builders made undue profits by failing to pass on to buyers the benefit of input tax credit that was available to them.

Before GST was introduced in July 2017, various taxes levied by central and state governments on under-construction property added up to 5.5-6.5%. Under GST, real estate was placed under the 12% tax slab. Many builders duly raised prices, even though they could now claim input tax credit against products and services on which they had already paid tax.

“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,” the person cited earlier said on condition of anonymity.

More than 50 property developers, including some of India’s top builders, are being investigated for profiteering under the goods and services tax (GST) regime, said a person aware of the development.

The investigation by the Directorate General of Anti-Profiteering (DGAP) is trying to find out if the builders made undue profits by failing to pass on to buyers the benefit of input tax credit that was available to them.

Before GST was introduced in July 2017, various taxes levied by central and state governments on under-construction property added up to 5.5-6.5%. Under GST, real estate was placed under the 12% tax slab. Many builders duly raised prices, even though they could now claim input tax credit against products and services on which they had already paid tax.

“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,” the person cited earlier said on condition of anonymity.

Industry experts said that at the time GST came into force, the real estate sector was struggling with weak demand for under-construction properties. Preference for ready-to-occupy homes to avoid construction delays and zero GST on completed houses further depressed demand for under-construction properties. During the period that input tax credit benefit was available to builders, they could claim credit for taxes paid on raw materials and services, but only for the flats sold until completion certificate was issued; for the remaining flats sold after obtaining completion certificate, they were not allowed to recover those taxes.

In the prevailing industry downturn, many developers ignored anti-profiteering provisions or did not pay adequate attention.

Industry experts said that at the time GST came into force, the real estate sector was struggling with weak demand for under-construction properties. Preference for ready-to-occupy homes to avoid construction delays and zero GST on completed houses further depressed demand for under-construction properties. During the period that input tax credit benefit was available to builders, they could claim credit for taxes paid on raw materials and services, but only for the flats sold until completion certificate was issued; for the remaining flats sold after obtaining completion certificate, they were not allowed to recover those taxes.

In the prevailing industry downturn, many developers ignored anti-profiteering provisions or did not pay adequate attention.

Before the new indirect tax regime came into force in July 2017, excise duty was levied by the central government at the rate of 12.5% on most construction materials, while state governments used to charge 12.5-14.5% value-added tax (VAT) on these materials. The amount paid towards these levies, however, was not available as credit for adjusting against the 4.5% service tax and the 1-2% VAT (depending on the state) levied on the under-construction flat sold to the customer.

Once tax rates on under-construction properties were reduced from 12% to 5% and on affordable housing projects from 8% to 1%, input tax credits were withdrawn.

The GST Council withdrew the tax credit benefit as it felt consumers were anyway not benefiting from it.

DGAP has so far investigated about 125 cases and found that 60% of them had indulged in profiteering.

Companies often find it onerous to pass on the benefit of tax reductions to every consumer across their product portfolio due to operational challenges. It is not sufficient for a business to show that it has not retained any of the tax benefits.

Also, increasing the quantity of the product sold is not accepted as a way of passing on the benefit of tax cut to consumers, which should be in the form of a price cut.

Officials concede that anti-profiteering provisions in the central and state GST Acts are not perfect and that these may evolve further in future.

 

 

 

 

 

 

Source: Livemint

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