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GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

Last updated: March 11 2019
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  • #11

    #11

    Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

    *Its mandatory to deduct TDS * 1% from each payment to builder if property cost is more than 50 lakhs..*

    If total sales consideration exceeds R50 lakh, TDS must be deducted on each payment, whether made in lump sum or instalments. The rate of TDS is 1%. These rules are applicable on sale of property, a building or land but do not apply to sale of an agricultural land.

    TDS must be deposited with the government within seven days from the end of the month in which it is deducted. So, if X deducted TDS of R64,000 on July 15, he must deposit it by August 7.

    Payment can be made online via Form 26QB. If you cannot pay online, an online receipt for Form 26QB with a unique Acknowledgment Number is generated for you. You can take this to one of the authorised banks along with cheque for payment. The bank will generate your challan.

    The payment is reflected on the seller’s Form 26AS under the head Part F within seven days. The buyer has to furnish a TDS certificate called Form 16B to the seller. This can be downloaded from the TRACES website. Buyer has to register on TRACES as a tax payer with PAN and challan number registered during payment.
    *Penalties on non-deduction of TDS* :

    Penalties apply under the I-T Act for non-deduction of TDS or delayed deductions. Penalty for late deduction or late payment of TDS (under section 201): 1% interest is charged for delay of every month due to late deduction of TDS from the date it was deductible to the date TDS is actually deducted. 1.5% penalty is applicable for every month for late payment of TDS deducted, from the date TDS was deducted till the actual date of payment.

    *Penalty for non-filing or delayed filing of Form 26QB* :

    In case of default of non-filing or late filing of Form 26QB, a penal fee is applicable under section 234E of the I-T Act. Rs 200 has to be paid for every day during which such failure continues.

    *Penalty for non-compliance with TDS rules* :

    Assessing officer may levy penalty under section 271H at his discretion. This section is applicable when a statement as required by the tax laws is not submitted timely. Penalty under this section is more than Rs 10,000 and can extend to Rs 1 lakh. However, if TDS is deposited with fee & interest and statement is submitted within one year of the time prescribed, no penalty under this shall be levied. The income tax department has details of property sold and purchased, via AIR (Annual Information Return) submitted by registrar of properties. So you may receive an income tax notice if you did not deduct TDS or if it wasn’t deposited timely.

    Comment

    • #12

      #12

      Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

      Originally posted by nitin.8769 View Post
      *Its mandatory to deduct TDS * 1% from each payment to builder if property cost is more than 50 lakhs..*

      If total sales consideration exceeds R50 lakh, TDS must be deducted on each payment, whether made in lump sum or instalments. The rate of TDS is 1%. These rules are applicable on sale of property, a building or land but do not apply to sale of an agricultural land.

      TDS must be deposited with the government within seven days from the end of the month in which it is deducted. So, if X deducted TDS of R64,000 on July 15, he must deposit it by August 7.

      Payment can be made online via Form 26QB. If you cannot pay online, an online receipt for Form 26QB with a unique Acknowledgment Number is generated for you. You can take this to one of the authorised banks along with cheque for payment. The bank will generate your challan.

      The payment is reflected on the seller’s Form 26AS under the head Part F within seven days. The buyer has to furnish a TDS certificate called Form 16B to the seller. This can be downloaded from the TRACES website. Buyer has to register on TRACES as a tax payer with PAN and challan number registered during payment.
      *Penalties on non-deduction of TDS* :

      Penalties apply under the I-T Act for non-deduction of TDS or delayed deductions. Penalty for late deduction or late payment of TDS (under section 201): 1% interest is charged for delay of every month due to late deduction of TDS from the date it was deductible to the date TDS is actually deducted. 1.5% penalty is applicable for every month for late payment of TDS deducted, from the date TDS was deducted till the actual date of payment.

      *Penalty for non-filing or delayed filing of Form 26QB* :

      In case of default of non-filing or late filing of Form 26QB, a penal fee is applicable under section 234E of the I-T Act. Rs 200 has to be paid for every day during which such failure continues.

      *Penalty for non-compliance with TDS rules* :

      Assessing officer may levy penalty under section 271H at his discretion. This section is applicable when a statement as required by the tax laws is not submitted timely. Penalty under this section is more than Rs 10,000 and can extend to Rs 1 lakh. However, if TDS is deposited with fee & interest and statement is submitted within one year of the time prescribed, no penalty under this shall be levied. The income tax department has details of property sold and purchased, via AIR (Annual Information Return) submitted by registrar of properties. So you may receive an income tax notice if you did not deduct TDS or if it wasn’t deposited timely.
      Is this TDS rule still applicable post GST?? Can you please clarify if you have any further information on the same..

      Comment


      • nitin.8769
        nitin.8769 commented
        Editing a comment
        TDS is direct tax provision, its not charged on to consumer but it is to be deducted from payment to developers & deposited to tax authority. Consumers are nothing to loose out of it.

        While GST is indirect tax, which is to be borne by consumers. Developer will collect GST from consumer & pay it to tax authority. Its other way round.
    • #13

      #13

      Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

      Originally posted by dalvinitin View Post

      Is this TDS rule still applicable post GST?? Can you please clarify if you have any further information on the same..
      Why confuse between income tax and service tax ? Both are totally opposite sides of the coin. 1% tds on sale of property continues. Service tax and VAT now becomes GST.

      Comment


      • svenkatesh1505
        svenkatesh1505 commented
        Editing a comment
        Is GST of 12% payable on 1% TDS?
    • #14

      #14

      Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

      Govt has issued notice regarding GST
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      Comment

      • #15

        #15

        Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

        Press Information Bureau
        Government of India
        Ministry of Finance
        15-June-2017 17:05 IST

        *Reduced Liability of Tax on complex, building, flat etc. under GST* 💠🔰🌀

        The CBEC and States have received several complaints that in view of the works contract service tax rate under GST at 12% in respect of under construction flats, complex etc, the people who have booked flats and made part payment are being asked to make entire payment before 1stJuly 2017 or to face higher tax incidence for payment made after 1st July 2017. This is against the GST law. The issue is clarified as below:-



        1. Construction of flats, complex, buildings will have a lower incidence of GST as compared to a plethora of central and state indirect taxes suffered by them under the existing regime.

        2. Central Excise duty is payable on most construction material @12.5%. It is higher in case of cement. In addition, VAT is also payable on construction material @12.5% to 14.5% in most of the States. In addition, construction material also presently suffer Entry Tax levied by the States. Input Tax Credit of the above taxes is not currently allowed for payment of Service Tax. Credit of these taxes is also not available for payment of VAT on construction of flats etc. under composition scheme. Thus, there is cascading of input taxes on constructed flats, etc.

        3. As a result, incidence of Central Excise duty, VAT, Entry Tax, etc. on construction material is also currently borne by the builders, which they pass on to the customers as part of the price charged from them. This is not visible to the customer as it forms a part of the cost of the flat.

        4. The current headline rate of service tax on construction of flats, residences, offices etc. is 4.5%. Over and above this, VAT @1% under composition scheme is also charged. The buyer only looks at the headline rate of 5.5%. In other cities/states, where VAT is levied under the composition scheme @2% or above, the headline rate visible to the customer is above 6.5%. What the customer does not see is the embedded taxes on account of cascading and sticking of input taxes in the cost of the flat, etc.

        5. This will change under GST. Under GST, full input credit would be available for offsetting the headline rate of 12%. As a result, the input taxes embedded in the flat will not (& should not) form a part of the cost of the flat. The input credits should take care of the headline rate of 12% and it is for this reason that refund of overflow of input tax credits to the builder has been disallowed.

        6. The builders are expected to pass on the benefits of lower tax burden under the GST regime to the buyers of property by way of reduced prices/ installments. It is, therefore, advised to all builders / construction companies that in the flats under construction, they should not ask customers to pay higher tax rate on instalments to be received after imposition of GST.

        7. Despite this clarity on law position, if any builder resorts to such practice, the same can be deemed to be profiteering under section 171 of GST law.





        *****

        Comment

        • #16

          #16

          Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

          For under construction installments, builder legally required to charge 12% GST & deposit tax

          Million$ question is will builder lower previously agreed price, and pass on benefits of input tax credits

          Most builders will try to minimize passed-on benefits, claiming input tax credits small (eg major cost was land & profits, so works-contract-tax small)

          1. Can people share how their builder negotiations progressing? Godrej Properties shared no details on GST, other than overview-news.
          2. For redevelopment, land cost is 0, and primary cost & tax is on "works contract", both for rehab owners & new units. How does this influence input tax credits?

          Comment


          • nitin.8769
            nitin.8769 commented
            Editing a comment
            Hi Amit,

            To answer your query, please note developers are unlikely to benefit Govt by not passing any ITC to consumers, since its not at all affecting their cash flow. For e.g. if builder charge 12/- GST on base consideration of 100/- he has to collect it from consumer & need to pay it to tax authority. However he will disclose to tax authority, that out of 12/- payable, he has already paid 3/- as Input tax, thus instead of paying 12/- he will pay just 9/-. so here, there might be 2 scenarios which can imagined;

            1) If he will not take benefit of ITC of 3/- & end up paying entire 12/- as tax : This is unlikely, since by doing this, he will be benefiting Govt & why would he benefit Govt by hurting his own esteem consumers?

            2) If he will take benefit of ITC while making payment to tax authority, but dose not inform it to consumer & collect entire 12/- tax from consumer : well, he simply can't do this malpractice, since he can not hide amount of ITC claimed by him & under RERA provision also, it need to be declared by developers. further looking at penalty under anti-profiteering clause, its will be very foolish on any developers part to indulge in any such practice for mere 2% of amount.

          • nitin.8769
            nitin.8769 commented
            Editing a comment
            * Amit :

            To further answer your another query, kindly note tax authority has clarified that 12% GST will be only applicable in case land cost is included in work contract consideration, that is arrangement includes land cost & development cost. While it can be noted that whereas work contract is of nature of pure development without any consideration for land (Typically in case of redevelopment project) rate of GST applicable will be 18%, while in both case full ITC will be allowed.

          • amarde8636
            amarde8636 commented
            Editing a comment
            I have paid 12% GST on one of the instalment. My query is how do I claim benefit of input tax credit from builder?
            Even though the builder has to pass on the benefits legally, can I trust the builder in this regard?
            There is no clarity on the mechanism to claim the benefit?
            1) Will the builder reduce the price of the flat? or the surplus tax will be credited back to buyer's account? How does it work?
            2) In pre-GST era the rate was 4.5%. Now its upto the builder to decide the return. Seems the GST has disempowered the buyer? What are your thoughts?
        • #17

          #17

          Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

          See the following statement as per articles on GST published in print media.

          "Currently, property transactions attract VAT at 1% of the transaction value payable at the time of registration of the agreement. However, with the amendment in the Maharashtra VAT Act, the buyer will have to pay the tax at the time of making staggered payments to the developer.

          The treatment for payment of VAT is now aligned with the service tax, which is also charged based on milestone payments. With these changes, a homebuyer making payments up to June 30 will need to pay tax of 5.5%, including 1% VAT and 4.5% service tax. The same homebuyer will have to pay 12% Goods and Services Tax, including 6% Central GST and 6% State GST for payments made from July 1given the GST implementation.

          Effectively, homebuyers making payments before June 30 will be paying 1% VAT, while any payment after that will attract 6% SGST. “The recent amendment by the Maharashtra government is a welcome move by which the buyers are getting the benefit of VAT payment in a staggered manner instead of paying upfront at the time of registration."

          What i interpret from this is earlier (pre GST) VAT * 1% of Agreement Valve used to be paid at the time of Registration, however post GST the same VAT need not be paid during the Registration and the same shall be paid in a staggered manner during the course of construction along with the milestone payments.

          The treatment of this VAT payment is contributed in the 6% SGST component of the total 12% GST value (6% Central GST + 6% State GST). I believe this is true for consumers who have not registered their flats and will be doing so post June 30th.

          However for consumers who have already registered their flats and paid the 1% VAT at the time of registration, for them charging GST * 12% is not justified since they have already paid the 6% State GST component (VAT part). Charging them with 12% will be like double taxation! Don’t you think so?

          I hope I am interpreting it correctly. Am I missing something?

          Comment


          • nitin.8769
            nitin.8769 commented
            Editing a comment
            Your interpretation is correct, However, it is still not clear that;

            1) all those who have paid VAT @1% at the time of registration before 31st may this year, will be liable to pay 6% SGST on stagaered payment post 1st July, or
            2) 1% VAT which was already paid will be adjusted against 6% SGST, thus making the effective rate of SGST to 5%, or
            3) these cases will be entirely exempted from 6% SGST?

            If No.3 is what is going to be true, than it will not be less than BONANZA for such consumers. however be ready for plenty of litigation & appeals post implementation of GST since considerable ambiguity still exists.
        • #18

          #18

          Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

          TODAY'S NEWSPAPER

          BUILDERS MISLEADING HOMEBUYERS ON GST

          Thursday, 22 June 2017 | Rajesh Kumar | New Delhi

          http://www.dailypioneer.com/todays-n...rs-on-gst.html

          Taking a strong note of builders and construction companies forcing buyers to make full payment before the rollout of the Goods and Services Tax (GST) on July 1, the Centre has warned builders of punitive action for trying to mislead homebuyers that they will have to pay more tax under the GST regime.​​​​​​

          Don't succumb to builder's illegal demand.

          Comment


          • nitin.8769
            nitin.8769 commented
            Editing a comment
            Boss.. its crystal clear that if work is 80% or more completed, than buyers will have to shed away 6.5% more tax (12% GST vis-a-vis 5.5% Serv. Tax & Vat) if payment is done after 1st July, since they wont b able to mostly claim ITC, as input services & material has been already consumed in Pre-GST era.

            What is mis-lead over here? Its a fact.

          • manzb
            manzb commented
            Editing a comment
            For 80% or more completed they must have already taken 90% or more money, then why pay the balance 10% before hand

            For a property valued at 1Cr, 10% means, 10 lacs. If you pay before 1st July, then you will pay 55K as tax (incl VAT). Total 10.55 lacs. Now the delivery is expected in next 1 year. So effectively you have paid 11.5 (incl interest cost).

            Now if you pay after GST, then even if there is hardly or no ITC is there then you pay 12% on 10 lacs, which is 11.2 lacs after 1 year. So a saving of 30K atleast. Even if 1-2% ITC is made available then total payable will comedown by another 10-20K.

            So Net- net even in this case you are better off by paying post GST.

          • nitin.8769
            nitin.8769 commented
            Editing a comment
            Hi Manzb
            Your submission has underlying assumption that you got to pay only after 1 yr. However, what happens if payment falls within next 4 month or 6 month?

            Referring to same example, mostly developers keep just 5 % payment pending for posession so anyway you got to pay 5% within immediately or within 6 months aftre GST roll out. So its always better to pay off if its gonna fall due within next 6 month

            I am also not expecting some ITC as mentioned by u, since developers are hardly gonna get anything which they procured well before 1st july.
        • #19

          #19

          Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

          If the builder has already taken the entire VAT and ST applicable on the agreement value in advance even though only 50% of the payment is made, does it mean that after GST is effective he can demand the differential tax from the buyer again? Or if the builder has already paid the entire VAT+ST to the Govt, the buyer becomes exempt from paying the higher taxes post GST?

          Comment


          • lazybone007
            lazybone007 commented
            Editing a comment
            I meant VAT and Service Tax

          • nitin.8769
            nitin.8769 commented
            Editing a comment
            Hi.
            U got below options in hand now
            1. Ask builder to adjst the amount illegally collected as service tax into flat consideration (plz note entire amt service tax is not wrongful, bt only part thereof is. Service tax is payable on demand or payment basis, whereas both demand & payment shud not exceed % completion)

            2. ask for formal recipt mentioning amt of payment & service tax (this is basic. Hw can ny1 ever miss on this)

            3. If builder does not agree, you may file complaint under RERA or CBED, since I am sure that he wud not have paid it to service tax authority, thus it is subject to fraudulent practice & tax fraud.

          • lazybone007
            lazybone007 commented
            Editing a comment
            Funny thing is builder collected entire VAT+ST in advance and also issued receipt for the same. Now he is saying that any additional tax due to GST also has to be paid by buyer
        • #20

          #20

          Re : GST implication for under construction property buyers, How to deal with developers for payment of tax after 1st Jul'17 ?

          nitin.8769 and others - 18% interest if builder found guilty under GSTs anti-profiteering rules. Attached; pls read

          Builders should not risk, hiding benefits from input tax credit, and not passing-benefit to buyers.
          Attached Files
          Last edited June 27 2017, 02:27 PM. Reason: user tag

          Comment


          • nitin.8769
            nitin.8769 commented
            Editing a comment
            Very useful.
            Thanks
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