According to the council officials, the entire 12 percent GST would have partially offset by the way of taxes paid on input by builders and the actual GST that the buyers should end up paying should be around 5 to 6 percent but the builders are not passing the Input Tax Credit benefits to the buyers.
The proposal in front of the council is to lower the GST rates for the builders who purchase the 80 percent of the construction materials from the registered dealers.
Currently, the builders are paying the dealers in cash and are therefore not passing the benefits to the buyers. Consequently, it does not make any sense to bring them to the official channel.
Currently, the primary construction material, capital goods, and input services used for the construction of flats and houses attract 18 percent GST and cement itself attracts 28 percent GST.
Before GST, the service tax levied on the under construction properties was 4.5 percent while the service tax was levied at 1 to 5 percent varying from state to state. The excise duty on the construction was 12.5 percent while the VAT levied was 14.5 percent. Also, the entry tax was levied at the input.
After adjustment of the credit on inputs, the total tax levied on the under construction properties were 15 to 18 percent.
The finance ministry has asked the builder over and over again that they should pass the Input Tax credit benefit to the buyers, but till now the words have fallen onto the deaf ears.
There have been a lot of discussion among the buyers regarding the GST levied on the under construction properties and that at the end it is the buyer who is suffering from the loss. They are neither provided with the reduced rates, not they are even given the tax credit benefit. The result has been the slow sales in the real estate market.
The government is making efforts to revive the real estate sector of the country by providing benefits not just to the domestic investors but also the NRI and global investors. The reduction in the GST rates will likely help in revamping the sales market.