Effect of GST verses VAT, Service tax, CST & Excise duty on Real Estate Developer:-
It is a great news that the GST has been tabled in our parliament but as per my analysis this is a not a good news for the public and the developer, when it comes to apartment purchase and sale.
As per my thought process, this is going add to the government coffer more in case of real estate development. Government is thinking that it is reducing the tax burden on the public by reducing the cascading effect of VAT and service tax being charged on the excise duty element but this is not true in case of real estate industry. at present the excise duty of 12.36% is being charged on the manufacturer and non excise dealers will add this to cost of material for the end user but the same will be extended till the end user under GST regime in the name of CGST & SGST, that means excise duty being charged at the each stage of the value addition. in case of construction industry the value addition will be more, for example developer will collect Rs.4500/- per sft from the customer for partment and spend Rs.1500 per sft towards land, Rs.1800 per sft towards construction & approval, remaining Rs.1200/- will be towards finance charges and profit element, now the end user will end up paying excise duty element on this Rs.1200 per sft, existing tax rates on apartment is roughly 15%, which is 4.944% of service tax and 10.15% of VAT (under regular scheme) but henceforth the GST rate will be 22%, which needs to be collected from the customer, this is roughly 7% higher taxes compared to existing, which is explained in the below example,
|
GST Vs VAT & Service tax on Apartment sale |
||
|
CGST & SGST |
VAT & Service tax |
|
|
Customer collection for the apartment (1200 sft *Rs.4500 per sft) |
5,400,000 |
5,400,000 |
|
Less: Land cost (approximately @30%) |
1,620,000 |
1,620,000 |
|
Construction cost |
3,780,000 |
3,780,000 |
|
Less: Labour charges@30% |
1,134,000 |
|
|
Material cost |
2,646,000 |
|
|
VAT on material cost - on steel 5% (25% of material cost is steel) |
33,075.0 |
|
|
VAT on material cost - on other purchase 14.5% (75% of material cost is other than steel) |
287,752.50 |
|
|
Service tax on 12.36% on labour charges (@ 40% of construction cost) |
186,883.20 |
|
|
CGST & SGST on construction cost @22% |
831,600 |
|
|
Total taxes |
831,600.00 |
507,710.70 |
|
Difference tax to be collected from customer |
323,889.30 |
|
|
Difference tax compared to previous total tax |
64% |
|
|
Difference % on construction cost |
9% |
|
|
Total taxes |
831,600 |
507,711 |
|
Less: input credit |
475,200 |
241,700 |
|
Final taxes payable |
356,400 |
266,011 |
|
increase in tax out go |
90,389 |
|
|
% of increase in tax out go to the department |
34% |
|
|
increase in tax collection from customer |
323,889 |
|
|
% of increase in tax collection from customer |
64% |
|
|
calculation of inputcredit, service tax credit and Vat credit |
||
|
construction cost per sft |
1800 |
per sft |
|
Material cost - approximatly 70% |
1260 |
per sft |
|
Steel purchase - 25% |
315 |
per sft |
|
Other material purchase-75% |
945 |
per sft |
|
5% VAT input |
15 |
per sft |
|
14.5% VAT input |
120 |
per sft |
|
Total VAT input |
135 |
per sft |
|
Service tax credit |
67 |
per sft |
|
VAT & Service tax credit on 1200 sft |
241,700 |
|
|
CGST and SGST credit on 1200 sft @ 22% |
475,200 |
|
Ramesh.N
Head of Finance and Accounts
Mahaveer Group
CAclubindia
