According to complaints from buyers of flats and other buildings-under-construction recently, builders are demanding that they be paid the entire amount of cost of buying the flat before 1st July, 2017.
This is what the builders are claiming: pay now, or else pay higher amount of tax under new GST (Goods and Services Tax) system. They say this because the current service tax that you pay on goods would amount to a maximum of 6.5%, whereas under the GST scheme, you will pay 12% service tax on the cost of construction.
What they do not tell you, and what you may not have noticed before, is that the tax you would pay on your flat or office building before GST rolls out, is calculated even on the inputs (cement, steel, etc.) the builder uses to construct the building. So until the GST rolls out, you will have to pay for the service of construction as well as for the cost of acquiring the raw materials used for construction.
After the GST rolls out however, you will pay only for the service of construction in the form of tax calculated at 12% on the cost of construction (labour). This is because builders are provided with a facility called Input Tax Credit (ITC), wherein they can claim a reduction of taxes on total cost of construction. So if it cost them Rs. 1000/- to get raw materials and another Rs. 500/- for labour, they can get back Rs. 1000/- from the government as it comes under the definition of “Inputs”. So if you make the entire payment for your flat before 1st July 2017, you will pay tax on Rs. 1500/-, but if you pay the total amount after 1st July 2017, you will pay tax on Rs. 500/-
Therefore, you will not bear the cost of input (raw materials) after GST rollout. This means you will pay less after GST for your house/office overall, than you pay now. So any builders out there claiming you can pay less before GST rolls out, are only trying to profit from your lack of knowledge about the effect of cost of inputs, on the price you pay for the flat. Such builders can be deemed to be profiteering under section 171 of GST law. Hence, it is good to be advised on this matter before making a purchase of a new home or office.
For more information, visit the following page: http://pib.nic.in/newsite/PrintRelease.aspx?relid=165663