GST complication in real estates/Businesses :

 

GST complication in real estates/Businesses :

 

Introduction:

The Indian real estate sector is one of the most important factors for the country's economic growth. It is not only an indicator of the country's development, but also a sector that provides employment to millions of people. However, the introduction of the Goods and Services Tax (GST) in 2017 has fundamentally changed the way this sector operates and has introduced numerous complications. This article aims to provide an insight into the complexities faced by the real estate business in India due to GST taxation.

 

Impact of GST:

In an effort to simplify the tax structure and eliminate the cascading effect of multiple taxes, the Indian government introduced the GST. For the real estate sector, the GST replaced several indirect taxes, such as VAT, service tax, and stamp duty. However, the transition to this single tax structure was not as smooth as expected. It led to a number of complex issues related to compliance, valuation, deduction, and more.

 

Complication 1: Multiple GST rates and their applicability:

 

The GST Council made several changes to the GST rates for the real estate sector, which created a significant complication. Originally, properties under construction were taxed at 18% and affordable housing at 12%, with full input tax credit (ITC). To address industry concerns, the tax rates were later reduced to 5% for properties under construction and 1% for affordable housing, but without the benefit of the ITC. On the other hand, the GST rate for road construction services was reduced to 18%, then to 12% shortly after the introduction of the GST, and now back to 18%. These frequent changes not only created confusion, but also a financial burden as contractors struggled with the loss of the ITC. These frequent changes create a rift between the business community and the government, as these frequent changes show the uncertainty in the GST laws or give an indication that the government was not ready for GST implementation.

 

 

Complication 2: Input Tax Credit (ITC):

The disallowance of input tax deduction (ITC) for residential real estate projects under the revised GST regime has become a major point of contention. Prior to the revision, developers were able to claim ITC, which helped reduce the tax burden. With the new regime, upfront GST costs for buyers decreased, but developers had to bear significant costs, escalating project costs, which may ultimately be passed on to end users. In addition, invoice compliance with ITC eligibility criteria is critical, which in turn can lead to either ITC loss or compliance.

 

Complication 3: Compliance Challenges:

 

The GST introduced an online taxation system intended to increase transparency and curb corruption. However, it also brought increased compliance obligations. Companies must now navigate complex tax filing and reconciliation procedures and maintain extensive documentation. This is particularly challenging for small and medium-sized developers, as they lack technological know-how and resources.

 

Complication 4: Antiprofiteering clause:

The anti-profiteering clause of the GST law, which requires companies to pass on the benefits of tax reduction and the ITC to consumers, has further complicated the issue. The lack of clarity on the application of this clause and the lack of clarity on the method of calculating the benefit have led to confusion, potential disputes, and increased litigation.

 

Complication 5: GST Software/ GST Website:

 

GST websites usually do not work on time and instead of offering a solution, they are used to give advice that does not wait for the final deadline. The cost of this website is about 1380 million with about 14 million users, which is about 10% of the total population. At the same time, we can see that many other websites/apps are running with more than this amount, but they only have such problems. Let us say a company has a cash liability of 100 million in a particular month and the website is not working on the last day so the tax return has to be filed late, because here Infosys is the culprit but the company has to face the consequences and pay high interest (around 49 lakhs) and penalties.

 

Complication 6: Mentality of GST officials:

most of the GST officials assume that all companies are working in “mens rea”. 'Mens rea' is a concept where it is assumed that a person willfully does something wrong and acts accordingly. Most senior executives are close to retirement and therefore do not want to update themselves, which not only leads to a lot of regulations and lawsuits, but also drives up costs. For example, for the year 2017-18, most companies received a notice of ITC non-conformity between GSTR-2A and GSTR-3B instead of asking for a review of the ITC availed.

Our government has made the change in section 16 effective 01.01.2022 and only after that such a discrepancy can really be questioned.

 

 

Complication 7: Multiple GST departments:

 

As on date there are multiple no. of departments like Central, State, enforcement, audit, Intelligence etc and all these many times send notice on same parameter to the assesses and when they were replied with the provisions of section 6(2) of GST act , they started asking multiple information and creating an unhealth environment for businesses . I remember an instance where we received notices from GST intelligence and we present with them with the application of section 6(2) as the most matters or differences were already open with some another differences , then the officer asked me - “what about the area where there is no difference” .

 

Conclusion:

 

While the GST was introduced with the objective of streamlining taxation, its impact on the real estate sector has been paradoxically complex. Developers, stakeholders, and consumers have struggled with evolving regulations, compliance hurdles, and financial implications. Therefore, it is imperative for the authorities to remove these complications and create a more stable and transparent fiscal framework to ensure sustainable growth of the real estate sector in India. In-depth consultations, clearer guidelines and digitization of procedures could pave the way for a simplified GST system in the future.