SLASHED GST RATE ON RESIDENTIAL PROPERTIES PART-3

SLASHED GST RATE ON RESIDENTIAL PROPERTIES PART-3

In our earlier update, we discussed about the valuation aspect of the residential buildings for which builders will be availing benefit of reduced GST rates w.e.f. 01.04.2019. The present update seeks to discuss the practical problem that will be faced by the builders in adjusting the GST already paid on the advances received prior to 01.04.2019 and its presentation in the GST returns filed post 01.04.2019.

It is to be noted that at present, the builders are eligible to avail ITC and are required to pay GST at the rate of 18% for construction of non-affordable residential houses and 12% for affordable residential houses with the benefit of deduction of one third of the total value as deemed value of land if the price of land is included in the consideration charged from the buyers. Furthermore, GST is payable even on advance received from the service receiver. Consequently, the builders have presently paid GST at the rate of 12% on the advances received against supply of affordable residential houses. However, if the invoices are being raised by the builder for such houses after 01.04.2019, whether adjustment of excess GST paid would be allowed to them and how to reflect such adjustment in the GST returns filed by them is the issue to ponder upon. This can be explained with the help of example as follows:-

Advance received by Builder X from Mr. Y as on 01.01.2019 with respect to affordable residential house = Rs. 1,00,000/-
Builder X would have discharged GST at the rate of 12% after availing deduction of one third as the value of land calculated as follows:-
1,00,000*2/3*12/112 = Rs. 7,142
It is also known that presently, the GST rate on cement is 28% and most of the other materials used in construction are being taxed at the rate of 18% whereas the builder is paying GST at the rate of 12% with deduction of one third in value thereby effective rate of GST being 8% in case of affordable residential houses. Therefore, builders are not paying any output GST in cash and are using their huge credit balance to discharge their GST liability.

However, with effect from 01.04.2019, the builders would be required to pay GST at the rate of 1% without facility of ITC on affordable residential houses. This may lead to tax planning by the builders wherein they can adjust the tax already paid on their advances by utilising input tax credit for offsetting their GST liability at the rate of 1%. There is no doubt regarding the fact that the GST paid on advances, even through utilising input tax credit is in the nature of advance tax that can be adjusted in the subsequent periods without any limit. Consequently, the builders may utilise their input tax credit balance as much as possible prior to 01.04.2019.
Continuing our above cited example, if the builder raises invoice to Mr. Y for an amount of Rs. 5,00,000/- on 10.04.2019, in such a case, the GST payable by the builder would be computed as follows:-
5,00,000*1% = Rs. 5,000/-
The builder will adjust the advance tax of Rs. 7,142/- already discharged by utilising input tax credit prior to 01.04.2019 and will not be required to pay any cash against his output GST liability.
The revenue authorities may object the adjustment of advance taxes paid by the builder for discharging their GST liability at the rate of 1%/5% post 01.04.2019 and this would again be a new point of litigation in the days to come.

This is solely for the educational purpose.
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SLASHED GST RATE ON RESIDENTIAL PROPERTIES PART-3

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