Real estate developers are likely to be the first to face investigation by the new anti-profiteering watchdog for allegedly denying consumers the benefit of reduced tax burden under the goods and services tax (GST) regime that kicked in from 1 July.
A standing committee of officials attached to the recently set up National Anti-profiteering Authority (NAA) has received several complaints of builders not passing on the benefit of lower tax under the GST regime, some of which will be taken up for investigation if there is prima facie evidence of profiteering, said a person aware of discussions in the authority on condition of anonymity. The NAA, chaired by senior bureaucrat BN Sharma, will direct the Director General of Safeguards (DGS), an investigating body within the Central Board of Excise and Customs (CBEC), to probe the issue, the person said.
Under GST, while under-construction houses attract a 12% tax, the quantum of tax rebates available to the developer on the final product is substantial as the tax already paid on raw materials like cement and steel is substantial at 18%.
In the earlier regime, the central government charged a 15% service tax on 30% of the value of under-construction flats, which worked out to 4.5%. This, together with the value added tax (VAT) levied by states on work contracts of 4-5%, took the total tax burden to about 9% without input tax credit.
In GST, the rate is 12% with input tax credit. The high component of tax credits means that the effective tax burden in the new regime is lower than earlier, explained the person cited above.
“Ideally builders should reduce the equated monthly instalment (EMI) to be paid by consumers. However, some developers are claiming higher input costs and change in business strategy to increase (the tax exclusive) price correspondingly. If they are increasing the price, they have to give justification, which has to pass the test of reasonableness,” the person said. Another official aware of the complaints said, “We have received complaints against builders from across India. The common tenor of the complaint is that the builders have increased the prices of the houses citing GST. The complaints will now be looked into as the anti-profiteering authority has now been set up.”
This post originally appeared on hindustantimes