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Effect of GST on real estate developer

ramesh 
on 22 December 2014

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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


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