Goods and Services Tax – GST – By: – Rakesh Garg – Dated:- 26-6-2017 – Builders contracts, i.e., construction of complex, have been considered as works contracts under the GST; and are taxable as services . Taxability: Vide entry no. 5 of the Schedule III of the CGST/SGST Act, sale of building, subject to clause (b) of paragraph 5 of Schedule II, is neither a supply of goods nor service. As per clause (b) of paragraph 5 of Schedule II, construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier, is considered as service. Thus, in short, where the complex or part thereof is supplied after issuance of completion certificate, supply of units is not subject to GST. Rate of GST: As per entry no. 19 of the rate
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in the compliance of GST: – Mandatory abatement towards land @33% (i.e., reducing the tax rate from 18% to 12%) might be sufficient or even be on the higher side if the project is located in sub-urban or rural area. However, in the premium or semi-premium localities, such as, south Delhi or South Mumbai, where land value is almost 80-90% of the unit value, this rebate is just insufficient. The legislature should have provided the mechanism to reduce the value of land in the prescribed manner; and it should have been left at the option of the builder to pay tax at the reduced rate of 12% if he is unable to value the land, or otherwise. The GST rate of 12% also restricts and states no refund of overflow of ITC , which means that no refund shall be allowed if the ITC exceeds the output tax. It is important to mention that in those localities where the value of land is comparatively low, the cost of material and services would certainly be proportionately higher (and thus, ITC). Thus, in s
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ner to construct 100 units; and out of which, 60 units are agreed to be given back to the landowner in exchange of proportionate land. In respect of construction of 60 flats for landowner, he is simply a works contractor which would be taxable @18% with full ITC. However, in relation to his 40 flats, which are to be sold with land to the buyers, he would pay GST @12% with no refund of overflow of ITC. In such cases, how the ITC inflow would be calculated. It is to be remembered that ITC also includes various common input services and common inputs and capital goods. How these common ITC would be bifurcated to arrive at the overflow of ITC? The builders also face another uncertainty in respect of sale of units; that is, at the initial period, they are not certain whether the entire project would at all be sold before completion of construction. Continuing the illustration in preceding para, suppose the construction period of 100 flats is 48 months. So far as 60 flats of landowner, it is
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