In a setback for real estate developers, the National Anti-Profiteering Authority has held that homebuyers cannot endlessly wait to get the benefit of input tax credit (ITC) for GST payments as the law does not provide that the gain should only accrue on completion of the project.
Nearly two years after the launch of GST, several builders have not passed on the benefit of credits earned for taxes paid on inputs such as steel, cement and paint, arguing that the amount will be settled at the time of delivery.
In fact, this is one of the key reasons for the government to shift to a new structure where tax credits will not be available.
Rejecting Bengaluru-based Sattva Developer’s contention that real estate business was market-driven, spread over four-five years and the pricing depended on multiple factors, the anti-profiteering body pointed out that the realtor had itself admitted to a gain of Rs 9 per square foot and said that the right methodology will be to link the ITC benefit as a ratio of turnover.
The Director General of Anti-Profiteering (DGAP) had estimated the ITC-to turnover ratio at 7.8% after the introduction of GST, compared to 5.1% in the pre-GST period. Based on these calculations, DGAP had estimated the amount “profiteered” at a shade under Rs 1 crore in the builder’s Laurel Heights project, which was questioned by Sattva Developers. The builder was ordered to pass on the gain from the “profiteered” amount to homebuyers.
“With this and other recent spate of rulings, it is quite evident that the National Anti-Profiteering Authority is closely monitoring the real estate sector, to ensure that any benefit gained by developers reaches the homebuyers,” said Harpreet Singh, partner at consulting firm KPMG.
