Taxation
GST on property: Urgent need to safeguard buyers vis-à-vis input tax credit, says report
The Goods and Services Tax (GST) has finally become a reality and is touted as the one of the biggest tax reforms in India. However, there is urgent need to safeguard the interest of buyers rather than just framing guidelines for developers, especially on the mechanism for input tax credit (ITC), says a research note.
 
In the report, Liases Foras, a non-brokerage research centric firm, says, "A detailed mechanism to ensure the smooth implementation of ITC facility is warranted to educate average home buyers about the process and implementation of ITC to make it what it is envisaged for."
 
At present, there is no transparent formula whereby a customer can ascertain what benefit he can get. "How do they ensure that 100% benefit is passed on to them? Where can the buyer verify details of input tax credit for the individual projects and calculate benefits available to her? At present, while their liabilities in terms of higher GST on subsequent instalments are fixed, their benefits are not fixed or guaranteed."
 
"It hinges on developer's capacity to get the ITC for input taxes for themselves first and then willingly pass it to buyers, separately for individual projects. Accurate estimation of both remains a challenge right now based on assumptions about pivotal things. Bottom-line, the tax is a pass-through and whether developers would reduce margins to pass on the benefits seems unlikely. Hence it will be given only when it is available with developers in actual terms," the report says.
While the GST is being lauded for simplifying the tax structure, the ITC is being seen as the biggest game changer whereby credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition. At present, the Industry is rife with speculation about the functioning or implementation of ITC facilities in real estate and its role to force a dip in real estate prices.
 
"This is because, under the GST structure, buying under-construction properties will attract a net effective rate of 12% as against the earlier rate of around 4.5-9%, including value added tax-VAT and service tax that varies across states. However, due to the input credit benefits that most builders will get on the key raw materials they buy, the buyer could actually benefit in terms of lower prices," Liases Foras says.
 
According to the rules, the quantum of GST a developer will be charging customers will be based on total outstanding amount as on 1 July 2017. This can be different for different customers in the same project. It is, therefore, possible that different customers in the same project with different amounts payable to the builder and different customers in different projects with the same amount payable to the builder may end up getting a different input set-off benefit.
 
Liases Foras explains this with an example, assuming the cost of construction for a housing unit worth Rs80 lakh is 50% or Rs40 lakh and of which the developer has so far spent Rs30 lakh. Under GST regime, the builder will have to pay the remaining Rs10 lakh after 1st July to get input tax credit from the vendors. Assuming that GST applicable to the builder is 18%, then the builder will pay a GST tax of Rs1.8 lakh to the vendor.
 
 
Now, for a customer who may have already paid Rs70 Lakh (possible under down payment plan) and has only Rs10 lakh as outstanding post 1st July, will have to pay Rs1.2 lakh (@12%) as GST, meaning that the builder can technically pass on the full input tax credit benefit of Rs1.2 lakh to this buyer.
 
As for a different customer, who has an outstanding amount of Rs60 lakh (possible under subvention schemes) as on 1st July, the amount due from him will be Rs60 lakh plus 12% GST, which is Rs7.2 lakh. Out of this, a developer may be able to pass on an input tax credit limited to Rs1.8 Lakh only.
 
"Further," Liases Foras says, "the troubling part for developers is that, they themselves are left in the quandary to ascertain regarding the ITC benefits they would be getting from their vendors. That again is also dependent on whether the turnover of the vendor is less than Rs20 lakh or over Rs20 lakh. For new projects or projects in early stages of construction, it may be relatively easier, but developers are left with significant challenges on how to rework contracts with existing customers in case of partly paid for projects well ahead into their construction, say 50%."
 
"Of course, the above analysis assumes the critical fact that all developers are willingly passing on 100% ITC benefit to buyers," the report says. 
 
The developers may just have to because of the anti-profiteering provision. To ensure that manufacturers, developers and service providers pass on the benefit to the final customer, the Government has included an anti-profiteering clause in the GST bill under section 171 of GST law. This clause clearly states that it is mandatory to pass on the benefit of tax reduction due to input tax credit to the final customer.
 
If any developer chooses not to do so, then there are penal consequences, to be decided by Anti-profiteering Authority.
 
 
"Besides the aforesaid guidelines, there is no concrete mechanism to compel developers to pass the benefits. While these guidelines serve as a deterrent, But considering the track record of real estate developers, it remains to be seen how many actually comply with the law in an honest manner. Sadly, if they choose not to, it is the buyer who has to suffer and go through 8-11 months long time to get justice," Liases Foras says.
 
Already many confused buyers are writing to developers asking for clarity on their available benefits in response to developer's mails stating that going forward 12% GST is to be charged on future instalments. That is where there is scope for disputes and litigations, if developers are unable to provide satisfactory answers.
 
According to Liases Foras, valuation of land in the payment of taxes is another major challenge for developers who are expected to pass on the ITC benefits to buyers. As proposed earlier, stamp duty has not been summed up in GST. 
 
"Hence, if the government does not come out with the abatement of the land value in the valuation of taxable amount, it will lead to double taxation of the land being transferred to the buyer during execution of the project. In case of a joint development project, total taxable value of land will be a matter of concern. In the coming times, this should be addressed by authorities and courts. The buyers may end up paying higher cost in absence of abatement of the land," it concluded. 
 

 

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COMMENTS

Avick Chakraborty

1 week ago

Excellent Report. Govt. should come out with clear guidelines to protect buyers' interest on ITC per individual unit and it's construction stage of the building where the unit is located. Before raising a "Demand of Payment" for a stage of construction there should be a transparent method on construction cost till that stage with a clear guidelines from Govt (later it can be by RERA when fully implemented). Remember, stage of construction for that stage including a clear and transparent accounting on split or transfer of input cost to other project or another building in same project. Stage of construction in a single project can also varies due to different Phases in a project. Some projects has Phase-2 and Phase-3 where construction starts much later. Also I doubt anti-profiteering clause is going to help. Firstly, Govt, does not want to invoke it and wants to use it as mere deterrent, most individual buyers are reluctant to go through painful legal journey, also 2 years period starting 1-Jul-17 is very small for real estate projects where completion time is on an average 3-4 years. RERA much ensure ITC component is very transparently communicated to customers at the time booking with a min. amount committed by builder (will enforce efficiency of execution of project) and an transparent mechanism to calculate and community the final ITC value to buyers at the time of payment.

Coconut Oil: Games vested interests play to label it as ‘health demon’
Until the 1930s, even bread in the US was made using coconut oil. Things changed and the ghost of cholesterol rose to flourish as the best business. Several so-called experts and organisations continue to label coconut oil as bad for health. However, one blog, FoodBabe, has exposed the nexus between these experts, organisations and industry players. 
 
"When it comes to health information, we must ALWAYS consider the source (and examine it well!). Even if advice seems to come from a perfectly respectable organisation on the surface (like the American Heart Association-AHA) – research who they are, who funds their work, and what types of health claims they’ve made in the past. This is something I do when reading health-related articles – and in today’s age of political and industry propaganda and manipulations, it is imperative that you take this step to be your own health advocate," says Vani Hari, food activist, creator of FoodBabe.com and author of 'The Food Babe Way'.
 
 
Some recent headlines in the US media once again try to term coconut oil as unhealthy. This includes, "Coconut oil isn’t healthy. It’s never been healthy” (USA Today), “Nutrition experts warn coconut oil is on par with beef fat, butter” (Chicago Tribune), “This popular health food is worse for you than pork lard” (Daily Star) and “Coconut Oil Isn’t As Healthy As We Thought, According To Depressing New Study” (Elite Daily).
 
 
 
Ms Hari says it seems the entire Internet freaked out at this “news”, and for good reason. "But I would be remiss if I did not remind you  all to be very careful about health advice reported in the media – because some well-meaning reporters fall for basic industry tricks like this one that has just happened," she added.
 
 
 
Prof BM Hegde, a renowned doctor and a Padma Bhushan awardee, has maintained that coconut oil is in fact best for treating skin diseases as well as Alzheimer’s disease
 
Busting the myths propagated by doctors and nutritionists over coconut oil, Dr Hegde had told Moneylife, “I am surprised when people say coconut oil is poison. If a doctor says that it contains cholesterol, it means he has not gone to a medical college. First thing they teach you in any medical school is biochemistry, where students learn that cholesterol comes from animal source. How can a plant like coconut could then be a source of cholesterol?”
 
“After realising this mistake, they (doctors and nutritionists) started saying that coconut oil contains saturated fat and hence it is bad. The larger question here is that one should inquire what coconut oil contains and not directly label it as bad,” the “people’s doctor”, had said.
 
According to Prof Dr Hegde, coconut oil and mother’s milk are the only two things that get digested in the mouth of a baby. “Both coconut oil and mother’s milk contains sodium monolaurate, which is monolauric acid and forms the basis of human immune system.”
 
Coming back to Vani Hari's blog, she says the American Heart Association (AHA) had released a new Presidential Advisory recommending that everyone avoid coconut oil, stating that it is high in saturated fat and raises ‘bad’ cholesterol levels – which they believe leads to heart disease. 
 
"AHA is the same organisation who told us for years to eat margarine (which was notoriously high in trans fat) calling it ‘more heart-healthy’ than butter because it contains ‘no dietary cholesterol’. They started this recommendation back in the 1960’s and continued it for decades, while the primary ingredient in margarine was partially hydrogenated oil full of trans fat. Well, we now know that the trans fat in partially hydrogenated oils are responsible for upwards of 20,000 heart attacks every year – which spurred the FDA to finally ban it from our food (effective in 2018). It’s rare for the FDA to ban anything! Boy, I’d say the AHA was way off on that recommendation, wouldn’t you?" Ms Hari says in the post.
 
According to Foodbabe.com, AHA and Big Food are long time best friends. It says, "Over the years, their sponsors have included a who’s who list of the worst Big Food brands out there, who fill their foods up with soybean oil, canola oil, processed meats, and sugar. This includes Kellogg’s, Pepsico, General Mills, Nestle, Mars, Domino’s Pizza, Kraft, Subway and Quaker."
 
"The AHA is also raking in upwards of $15 million dollars per year from drug and healthcare companies – including over $3 million from Pfizer (the maker of the statin drug Lipitor that reduces cholesterol). Could this be why the AHA recommends that millions more Americans be prescribed statins, even healthy older people with no history of heart disease? The members of their research committee are raking in industry dollars too… receiving tens of thousands from drug companies to fund research, make trial appearances, and serve as consultants – which is a blatant conflict of interest," Ms Hari says in her blogpost.
 

 

User

COMMENTS

shadi katyal

1 week ago

How the USA keeps changing the usage ofoil is a mystery to most of us.Linseed oil which is commonly used in India is labelled as not for consumption. Similarly we have seen recent changes in other food consumptions like Coffee etc.Coconut oil now is considered as the best cooking oikl after Olive as it has Omega 3 and thus healthy

Ankur Bamne

1 week ago

Coconut oil, just like any other oil is a refined and processed food. It is impossible in nature to fall in a pit of coconut oil. If one has the entire coconut, he/she gets the fiber along with the phytonutrients, not just the oil. Whereas coconut oil is the highest concentrated form of energy (9Cal/gm). It is highest in saturated fat and contains no essential omega 3 fatty acids. Its not a health food. No oil is. Not even oilve oil. Apply it externally and its good. Dont drinkit or fry in it.

REPLY

Ravi Chandra Vattipalli

In Reply to Ankur Bamne 1 week ago

Dear Ankur ji ,
Coconut oil is good as it contains Medium Chain Triglycerides, which are absorbed right from our mouth and cause early satiety. They can get converted into ketones thru salivary lipase and form alternative fuel to the brain. Coconut oil also has a high gas point and is suitable for re heating unlike other oils. The idea of the article to my understanding is only to be ware of AHA recomondations which could be market driven rather than being solely in public interest.

SC Constitution bench to hear Aadhaar challenge on privacy issue
A five-judge constitution bench will hear from July 18 the challenge to validity of the controversial Aadhaar Act on the touchstone of privacy, an issue that has been pending for two years.
 
The bench would decide whether the right to privacy is a fundamental right -- a question central to the Aadhaar Act. 
 
A bench of Chief Justice Jagdish Singh Khehar and Justice D.Y. Chandrachud said on Wednesday the five-judge bench would hear the matter for two days.
 
Khehar agreed to the hearing by the constitution bench after senior counsel Shyam Divan and Attorney General K.K. Venugopal mentioned the matter for an early hearing. 
 
The question on the validity of Aadhaar scheme on the touchstone of whether privacy was fundamental right was referred to the constitution bench in October 2015. 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

A BANERJEE

1 week ago

I sincerely hope that the concerns of the investigating officers in the IT deptt., ED, etc., engaged in unearthing tax fraud cases, money laundering cases, etc., are placed before the Hon'ble Court.

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