Goods and Services Tax – GST – By: – Ravi Kumar Somani – Dated:- 22-12-2016 – One of the most complex areas of the tax levied by the Centre and the States is works contract and sale of property. Currently, such transactions are broken into three parts – the value of goods and materials, value of services and value of land. The States apply VAT to the goods portion and the Centre taxes the services portion, with no explicit tax on the transaction value of land. The State also collects stamp duty and registration charges for the registration of property. Each authority taxes on aspects and valuation independent of the others. More than 200% of the value is being taxed in some States which is no fair. Real estate transactions unfortunately are subject to manipulation and undervaluation in most parts of India. This area has seen extensive litigation and many borderline, illogical reasoning has bene accepted by the tax authorities on the logic that some tax is being collected. Construction
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nufacture, sale or service etc. There will be only one concept i.e. Supply . All the supplies will be categorized as Supply of goods or Supply of Services or composite supplies (multiple supplies). Construction activities will be works contract which is being categorized as Services . All builders and developers in India will be collecting and paying CGST and SGST (i.e. Central GST and State GST. The place of supply of the service is the location of the immovable property. Recently, CBEC has issued a revised updated Model GST Law – Nov 2016 wherein the older version of the draft issued in June 2016 has been partially revised. This article discusses the nuances of revised GST from the point of view of the Real-Estate sector also bringing out the impact that will be caused in this sector. Presently builders/developers are paying following indirect taxes: Service tax (ST) on services either to provider or on reverse/ joint charge (sub contractors, manpower supply etc); Value added tax (VA
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rought under the tax net in the GST regime. Therefore, if any long term contract is entered in the current tax regime now but if GST is implemented, then the same would be taxable under the strictures of the GST law therefore, It is important to factor the GST impact while arriving at the price of the contract and the burden of the taxes must be clearly reflected in the contract to avoid any complications at a later date. Expected Rate of Tax: Recently, the GST council has agreed upon the 5 rate structure for levying tax on various goods and services i.e. 1%, 5%, 12%, 18% and 28%. It is expected that the rate of GST that may be applicable on this sector would be mostly 12%. There may not be any further abatement/ composition on this rate. Although this rate will be little on the higher side as compared to current tax rates which is between 6% to 10%. Although such high rate could have an adverse impact on this sector, however this impact could largely get reduced due to ease in credits
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ed by way of issuing a notification during the GST regime. Unclear provisions in this context could lead to large scale disputes. Requirement of completion certificate: Similar to provisions in service tax, GST is said to be levied if amount is received prior to completion certificate and there would be no GST if the entire amount is received after the completion certificate. Further, it is also stated that even if completion certificate is not received, GST may not be levied after the first occupancy of the premises. This would provide relief to builders who for various reasons were unable to obtain the completion certificate from the authorities and as a consequence were denied the exemption from service tax. Treatment in case of SEZ/ EOU s: There is no clarity in the model GST law as to continuity of the exemptions in respect of EOU s. However, as far as units operating in the Special Economic Zone are concerned, it is explicitly stated that same will be on par with the exports and
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n though the project is for a very small period or for a small value. Although, this scenario is in existent in the current law for the state taxes but the same will now be done even for the central taxes. High Compliance burden: Compliance burden will be very high in the GST regime as one has to file 37 Returns in one financial year for each registration. Further, returns filed will be matched online with the support of the IT infrastructure with the returns of the vendors/ customers. In case taxes are not paid by the vendors or if the returns are not filed by the vendors, then the credit of such taxes is denied to the customers. Therefore, timely payment of taxes, filing of returns needs to be ensured in the GST regime. Transitional Credits: To transfer the existing credits in the GST regime, condition has been kept that such credit must have been admissible in the GST regime. Therefore, builders should be able to transfer the following credits to the GST regime: Credit of Service Ta
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ence of duty/ tax paying documents Credit of CST: The same cannot be availed based on the stock availability as on the appointed day. Entry Tax: Credit of same can be availed subject to possession of appropriate documents for the same in states where such set off is permissible. Anti-Profiteering Measures: Since a builder will be able to take the credit of goods lying in stock, the tax cost would decrease. This additional benefit accruing to the builders is expected to be passed on to the end consumer by way of reduction in prices etc. A separate authority will be formed in the GST regime to monitor the non-compliance of the anti-profiteering matters which could have an adverse impact on the entire construction industry whose pricing is more market dependent than other factors. Therefore, it is imperative for the builders to establish passing of the GST benefit to its consumers. In these times of falling prices this may not be challenge though. Time of Supply in GST: Currently, many bu
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ial rate if applicable could be a cause of concern. Valuation complexities: Valuation of the services would be at the transaction value. However, valuation with the related parties/ between the group companies needs to be properly dealt with and must be kept at the arms length price to avoid unnecessary departmental intrusion. Good IT Infrastructure: In GST regime, businesses have to move from the manual environment to computerized environment. Only an efficient IT infrastructure and its best usage can help businesses meet the high compliance needs of the GST. If IT infrastructure is not optimally utilized, then it would be challenging for any business including real-estate sector to function efficiently in the GST regime. Further, in the computerized environment, physical interaction with the department officials would reduce substantially. ERP must be customized to make it capable to meet needs of the business as well as comply with GST. Conclusion: The implementation of GST is possi
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