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Builders Under GST Scrutiny: Notices Issued to Reverse ITC

Last updated: 16 February 2024

In a significant development, the Goods and Services Tax (GST) department has initiated action against numerous builders, issuing notices to reverse Input Tax Credit (ITC) claimed for the fiscal years 2017-18 and 2018-19. These notices specifically address ITC claimed on unsold apartments at the time of obtaining Building Use (BU) permission, directing builders to reverse the credit for units sold post-BU permission due to non-payment of GST for these transactions. Consequently, developers are urged not to claim ITC for such apartments.

A knowledgeable source has disclosed that several developers are under scrutiny for allegedly claiming excessive ITC during the 2018-19 period. Notably, the option of GST rates at 8% or 12% (with ITC) was available only for ongoing projects as of March 31, 2019. Projects initiated after April 1, 2019, must adhere to GST rates of 1% or 5% (without ITC). However, GST does not apply to unit sales post-BU permission.

Builders Under GST Scrutiny: Notices Issued to Reverse ITC

Instances have been identified where developers claimed full ITC when they were eligible for lower rates, prompting the issuance of notices by the GST department. Builders receiving such notices are advised to reverse ITC along with interest and penalties as per the law. Lack of awareness about ITC rules among developers has been cited as a contributing factor to these discrepancies.

Since April 1, 2019, GST stands at 1% for affordable housing projects meeting specified criteria, while non-affordable housing projects attract a 5% GST rate. To qualify for concessional rates, it is imperative that at least 80% of inputs and input services are procured from registered suppliers. Shortfalls in this regard require developers to pay taxes under the reverse charge mechanism.

Furthermore, it is crucial that cement procurement strictly occurs from registered suppliers. Procuring cement from unregistered sources may render developers liable to pay a 28% tax under the reverse charge mechanism, with payment due in the month of cement receipt.

As the GST department intensifies its scrutiny on builders, the industry is expected to take corrective measures to ensure compliance with tax regulations, mitigating risks of penalties and legal consequences.

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