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As the Goods and Services Tax (GST) crossed the Rubicon on July 1, 2017, businesses across the nation, including developers, are clamouring for clarity on how to conduct their business. Under the new law, every business carrying out a taxable supply of goods or services and whose turnover exceeds the threshold limit of Rs 20 lakh, has to be compulsorily registered under GST.
Quantify the impact on existing or new projects
Differential impact of GST (effective rate 12 per cent) and service tax (4.5 per cent) would need to be quantified and compared against the savings arising on account of excise duty, VAT etc. "This would vary from project to project and the stage of construction of a project. For instance, savings may not be material for a substantially complete project and the tax incidence is set to increase." This means that the headline rate of 12 per cent needs to be compared against the service tax rate and the taxes factored by the developers which were not allowed as credit and replaced with GST to conclude whether the final price would increase or decrease.
Update the IT system
Developers, contractors, suppliers must get their IT system updated to generate GST-compliant invoices. Every invoice should contain the name, address and GSTIN of the supplier and the recipient as well as the date of its issue. The invoice should also contain the quantity of goods or services provided and the rate of tax charged. "Also ensure that the IT system captures the data point for the first filing which will come up in August and a detailed filing which will have to be filed in September."
Quantify savings available to contractors
Contractors need to ensure that they are passing on the benefit on account of taxes which were not allowed as credit to them and was factored as part of their price. "This means, for the customer to benefit from reduction in such tax cost, the contractors should reduce their price to the developers." This would enable the developers to pass on the benefits to the customers.
Under GST, under-construction properties will be taxed at 12 per cent. The government has advised all builders/construction companies to refrain from asking customers to pay higher tax rate on instalments to be received after GST implementation. If any builder indulges in anti-profiteering then action can be taken against him under Section 71 of the GST Act. Therefore, all third party contracts and builder-buyer agreements should be GST-compatible.
Miscellaneous charges and expenses
The GST rate on various types of charges and expenses such as basic sales price, preferential location charges, EDC/IDC, transfer charges, development rights would need to be determined as per the GST regime. "Further, VAT and service tax paid under the previous regime in respect of goods lying in the stock would need to be determined in the light of new taxation laws. This would help developers apply the correct GST rate and credit of taxes paid under the previous regime."
Educate the eco-system
As GST is a new tax regime, developers should take initiative to help the unorganized players especially contractors, suppliers and brokers to understand the law which would translate into ensuring that the entire value chain is benefitted from it. The government has agreed to take a lenient view for the first couple of months. "The government has said that a detailed return need not be filed by traders/businessmen and only a summary return would suffice." So in case of any slip-ups by a builder, he may not be hauled up by taxmen.