Tax department issues notices to realtors for inflated credit claims under GST

About 400 real estate developers, including listed companies, have received notices from the indirect tax department for inflated credit claims under the Goods and Services Tax (GST), said two people aware of the development.

The developers have been asked to pay a fine of 100% and interest of about 18% on the wrongly claimed credit, according to the notices. Many developers, especially those with a substantial presence in commercial property and retail malls, have been served with the notices, tax officials said.

“About 20 developers from Mumbai, including some of the listed players, have submitted input credit claims for raw material that had already been used when GST was rolled out. These companies will now face steep fines,” said a tax official.

The companies had claimed credit on input costs such as steel, cement and sand used for under-construction buildings to offset future GST liabilities, tax officials said. However, the indirect tax department claims that some developers also claimed credit in cases where buildings were already completed when GST was rolled out on July 1, 2017.

“A developer had already constructed 10 floors of a building on July 1, 2017. But while taking credit he claimed that only two floors had been constructed and availed of additional credit for eight floors,” said another person aware of the development. In this case, the tax department has disallowed credit of Rs 100 crore and demanded penalty of an equivalent amount.

Industry experts said the rules for availing tax credits are very transparent. Eligibility of input tax credits for real estate developers depends on whether the apartments are sold before receipt of occupation certificate and the proportion of activities completed in a project before and after July 1.

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