GST Council will announce new rules on 19th March on how far builders can make use of credit for taxes paid on raw materials and services in settling their final tax liability .The Council has designed a formula to allow builders to take advantage of the tax credits on their books .A government official said that the policymakers want to give relief to builders to the extent possible as unused credit will either push up the cost of property or impact the bottom line of builders.
The new rules will specify under what circumstances sale transactions initiated in the current tax regime but concluded after 1 April will be eligible for credits on taxes paid on raw materials and services. It will clarify the tax rates applicable and the availability of tax credits in different scenarios including where the builder has paid taxes on raw materials but has either not started construction or has only half-completed the construction.
An official stated that the new formula for utilization of credit during the transition period takes into account the fact that unlike other industries, real estate projects have a long gestation time.
Ved Jain, former president of the Institute of Chartered Accountants of India (ICAI) explained that currently, unutilized tax credit is an asset on the builder’s books and the moment that becomes unusable, it becomes an expense and has to be shown accordingly. Customers are liable to pay the property price plus GST at the applicable rate under property sale deals.Buyers will insist on paying only 5% GST in cases where houses were booked earlier but sale is to be completed after 1 April, while developers may prefer to utilize the input tax credit available to them and charge the higher tax rate prevailing now.
