New Delhi: Developers of affordable homes should not collect goods and services tax (GST) from buyers as the effective rate of 8% tax can be met by rebates on the taxes already paid by the developer on the cost of materials, the government said on Wednesday.
The finance ministry clarified that most affordable housing projects attract a 12% GST, the effective rate of which falls to 8% after adjusting for the cost of land, which is not subject to GST. Only the value of the house, excluding land, is taxed under GST. Equipment deployed in construction such as capital goods are taxed at a higher rate of 18% or 28%.
“As a result, the builder or developer will not be required to pay GST on the construction service of flats, etc., in cash but would have enough input tax credit in his books to pay the output GST, in which case, he should not recover any GST payable on the flats from the buyers," said the ministry in a statement.
The ministry also said that a builder can recover GST from home buyers only if the cost of the flat is “recalibrated after factoring in the full tax credits available in the GST regime" and the ex-GST price of flats is reduced.
The government said that builders have to scrupulously follow the anti-profiteering principles laid down under Section 171 of the GST Act. This section mandates that any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.
At its 25th meeting on 18 January, federal indirect tax body, the GST Council lowered the tax rate on construction of houses under the Credit Linked Subsidy Scheme from 18% to 12% to promote affordable housing. The change in tax rate had came into force on 25 January.