18th August, 2018
Business

Real Estate Prime Target Under GST Anti-Profiteering Clause

The anti-profiteering watchdog seems to catch the hold of real-estate developers first. The real estate players are likely to face the investigations by the new anti-profiteering authority (NAA) for denying consumers the benefit of reduced tax burden under new goods and services tax (GST) regime.

A standing committee of officials of National Anti-profiteering Authority (NAA) has received several complaints saying that builders are not passing the benefit of lower taxes under GST. The NAA is chaired by senior bureaucrat B N Sharma. The NAA will direct the Director General of Safeguards, a unit under Central Board of Excise and Customs, to probe the matter.

Reduced taxes

The under-construction houses attract a 12% GST. The tax-rebates available to the developer are huge as the GST already paid on raw materials (cement and steel) is 18%.

In the previous indirect tax regime, the central government charged a 15% service tax on 30% of the value of under-construction flats. This actual tax stood at 4.5%. This was combined with additional 4-5% value-added tax (levied by state governments) on work contracts and the total tax burden stood at 9% without input tax credit.

Under GST, the rate stands at 12% with input tax credit.

Builders’ role

Builders shall reduce the equated monthly instalment (EMI) to be paid by consumers. However, a few developers are claiming higher input costs and change in business strategy to increase (the tax-exclusive) the price correspondingly.

Experts, however, said the anti-profiteering provision in GST may not ensure the benefits of reduced tax burden to consumers. The businesses often jack up the prices in free market, unless the product is listed under the Essential Commodities Act.

Policymakers also say the GST’s anti-profiteering provision is not foolproof. The investigator has asked the businesses suspected of profiteering to give justification for any price increase made after the GST regime. It has also directed that price increase should not be an attempt by the business to corner the tax benefit.