GST UPDATE-REAL ESTATE-PART-12 ADJUSTMENT OF GST PAID ON ADVANCES PRIOR TO 1.4.2019.

CA. Pradeep Jain

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GST UPDATE-REAL ESTATE-PART-12 ADJUSTMENT OF GST PAID ON ADVANCES PRIOR TO 1.4.2019.

The new tax system introduced in real estate sector has been a pandora box which will remain unsolved till many coming years.In this series of updates regarding clarifications for complexities in new system, this update seeks to highlight the question- Whether GST paid on advances which remain unadjusted as on 1^st April 2019 can be adjusted against the output tax liability supposedly to be paid in cash in new tax system?

Before proceeding further, we are discussing the treatment of the advances paid, advances adjusted, credit notes issued in a particular month in GSTR 3B and GSTR 1 returns.

Although it is being clearly instructed while filing of GSTR 3B return that the advances against which tax has been paid shall be adjusted as and when the invoice has been raised against the same.Details of advances as well as adjustment of advances against invoices are required to be shown as a part of 3.1(a) in GSTR 3B. In addition to this, Details of the amount received as the advance are required to be mentioned in sr. no. 11A of the GSTR – 1 return. As it shows the figure of the advance money received in the tax period for which invoice has not been issued, details of all the invoices raised in the month for which return is being filed but advance was received and tax was already paid in the previous months has to be entered in sr. no. 11B of GSTR 1.

One of the practical issues among while filing GSTR 3B is how to fill GSTR 3B Form if the Sales return (Credit Notes issued) for any month is more than the actual Outward Supply for that month?While the GST Department and CBEC has not yet come out with clarification to these problems since the GSTR 3-B Form does not accept figures in the negative. But the experts have advised that in case of excess credit notes, the unadjusted minus figures should be adjusted against the sale of subsequent months of 3B. For example,Mr. A developer has issued credit notes worth Rs. 20,00,000/-(CGST 1,80,000 and SGST 1,80,000 each ) in March 2019 whereas the sale figure was Rs. 1,00,000/- (CGST 9000 and SGST 9000 each ) in the month of March 2019. Therefore, tax amounting to 1,71,000 each in CGST and SGST remain unadjusted in the same month. Since from 1^st April onwards, taxpayers shifting to new tax regime has to dispose of the tax liability fully in cash, but the unadjusted advance would tantamount to payment of tax liability using input tax credit. The advances and credit notes unadjusted at the end of March 2019 were paid off using Input tax credit lying in the electronic credit ledger of the taxpayers. The department may raise contention that it is a tax evasion activity and therefore the whole amount would be required to be paid off in cash.

The point to be kept in mind that there is no utility of refunding the tax amount pertaining to the said unadjusted advance and credit notes in cash on the online portal.
Therefore, the only option left with the assessee is to adjust such amounts in subsequent months against the 1% and 5% sales figure.
Moreover, the Central Board of Indirect Taxes and Customs (CBIC) has recently issued clarification in the form of FAQs on GST changes for real estate sector said that builders will have to refund GST paid by homebuyers if he/she cancels the flat booked in the last fiscal and will be allowed to avail credit adjustment for such refunds.
Developer will be able to issue a ‘Credit Note’ to buyer as per provisions of Section 34 in case of change in price.

Also, builders, not buyers, will have the power to choose between the optional GST rates decided for the real estate sector by May 10.
If a real estate developer has collected 12 per cent GST from homebuyers beginning April 1, 2019, but later opted for 5 per cent rate, the builder will have to refund the extra tax (7 per cent) collected to the buyer. The FAQs, however, did not clearly spell out whether 7 per cent tax refunded by the builder will be adjusted against his GST liability. The FAQs said developer will be able to issue a ‘Credit Note’ to the buyer as per provisions of Section 34 in case of change in price or cancellation of booking. “Developer shall be able to take adjustment of tax paid in respect of the amount of such Credit Note,” the FAQ said. If the developer is allowed to adjust the excess tax paid by way of utilisation of input tax credit prior to 01.04.2019 for discharging GST liability of 1%/5% after 01.04.2019, it will lead to utilisation of input tax credit indirectly even after 01.04.2019 which is technically not permissible. This can definitely be a measure of tax planning by builders and the quantum of litigation on this subject will be revealed in the days to come.

This is solely for the educational purpose.

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GST UPDATE-REAL ESTATE-PART-12 ADJUSTMENT OF GST PAID ON ADVANCES PRIOR TO 1.4.2019.

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