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Reduced liability of tax on homes under GST


  1. Construction of flats, complex, building have a lower incidence of GST as compared to a plethora of Central and State Indirect Taxes suffered by them under the earlier regime.
  2. Central Excise Duty was earlier payable on most construction material @ 12.5%. It was higher in case of cement. In addition, VAT was also payable on construction material @212.5% to 14.5% in most of the states, Input Tax Credit of the above taxes was not allowed for payment of Service Tax. Credit of these taxes was not available for payment of VAT on construction of flats etc.,. Under composition scheme. Thus there was cascading of input taxed on constructed flats etc.
  3. as a result, incidence of Central Excise Duty, VAT, Entry Tax, etc., on construction material was earlier being borne by the builders, which they passed on to the customers as part of the price of flats charged from them. This was not visible to the customers as it formed a part of the cost of the flat.
  4. The earlier headline rate of service tax on construction of flats, residences, offices etc., was 4.5%. Over and above this, VT @1% under composition scheme was also charged. The buyer only looked ar the headline rare of 5.5%. In other cities/States, where VAT was being levied under the composition scheme @2% or above, the headline rate visible to the customer as above 6.5%. What the customer did not see is the embedded tax on account of cascading and sticking of input taxed in the cost of the flat etc.
  5. The situation has now changed under GST. Under GST, full input credit is available for offsetting the headline rate of 12%. As a result, the input taxed embedded in the flat will not (& should not) form a part of the cost of the flat. The input credits should take care of the headline rare of 12% and it is for this reason that refund of overflow of input tax credits to the builder has been disallowed.
Clarification provided by CBEC

Compiled by
CA.R.JEYARAJAN FCA.,
Mail id: jeyarajan@rareassociates.in
Labels:
Location: Thoothukudi, Tamil Nadu, India

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