Sie sind auf Seite 1von 8

INPUT TAX CREDIT UNDER GST TO BE PASSED ON

BY BUILDERS TO FLAT / PROPERTY BUYERS

As required u/s 171 of the GST Act and Press Release dated 15th June 2017 issued by the
Government of India, it has become mandatory for builders/developers to pass on the Input Tax
Credit (ITC) benefits to the buyers of under construction flats/ properties.

It is very important to understand that the flats/ properties under construction can not be treated like
any other goods or services. The construction of flats/ properties takes a long time to complete and
hand over the same to the buyers. The construction of a project consisting of flats/ properties
requires hundreds of different kind of goods and many type of skilled/ unskilled labours. The prices
of the goods and the rates of labourers keep on changing due to government orders and also due to
demand supply ratio. Accordingly the cost/benefit against GST input credit of under construction
flats/ properties can not be accurately estimated as there will be variances due to quantities and rates
of goods and labourers which are to be used in future years.

The ITC benefits now available to the builders under GST may be passed on to the flat/property
buyers in many ways. Some of them are:

a) reducing the prices of the flats/ properties


b) by giving discounts to the buyers
c) by crediting/ paying the ITC available, claimed and deducted from output liability to the
account of the flat/property buyer.

Reducing the price or giving the discount may be based on an estimate of ITC available in future
which will never be accurate due to various reasons like quantities and rates of various goods/
labourers to be utilized in future and the same will vary to a great extent due to the uncertainties of
future. Further, the same may be challenged by anyone concerned including the Anti-Profiteering
authorities and it will not be be possible to establish the accuracy of the price reduction or discount
given due to the assumptions taken by different builders according to their own knowledge/
assumptions.

Further, there may be number of reasons for increasing the prices or giving discounts like cost of
goods/ labour, festivals, stage of construction, specification of the flats/ properties, location of the
projects, sudden positive/ negative developments in and around the location of projects, demand –
supply ratio and many uncountable reasons beyond the imagination of anyone. Thus reducing the
price or giving discounts on account of ITC benefits under GST will have to be necessarily
explained as to how the same has been calculated.

Further, for how many days/ months the prices of the flats/ properties will be kept reduced or
discount will be kept on being given? In this method of passing the ITC benefit it will be very
difficult to increase the prices/ withdraw the discount in future, as the increase in prices or reduction
in discount will again have to be explained to anyone concerned including Anti-Profiteering
authorities.
The cost of flat/ properties may increase in future due to the quantities/ rates of goods/ labourers and
in that case the builder has to increase the prices on that account. It will not be possible every time to
re-calculate the estimates of cost and justify the price increase, there will be no takers for the same.
And what about the demand – supply ratio? The builders keep low prices at the time of launching
new projects and as the bookings go up, the prices also are increased to achieve the average price
realisation. This system is adopted all over the world in these kinds of projects; so that the early
birds get flats/ properties at rock bottom prices and the builders get finance to do the construction.
Accordingly, the last few units are sold at highest prices as the flat/properties are now ready to
occupy and the prices get increased due to time factor also. The buyer does not have to wait and he
immediately starts using the flat/property for himself or starts earning rent on the same. In a
democratic free economy like India, prices are decided by the equilibrium point of demand & supply
which is the basic principle of economics.

Therefore, the prices of flats/property may get increased/ reduced due to number of reasons and it
will not be possible for anyone to justify the price increase/ reduction. It will further be more
difficult to explain that the GST ITC benefits have been passed to the buyer and has been considered
in these prices.

Further in case of reducing the prices, there will be another problem of the reduced prices being
below the government rates for stamp/ registration purposes. In that case, the builder & flat/property
buyer both will have to pay Income Tax on the differential value under the provisions of the Income
Tax Act, apart from being accused of using black money.

Therefore, the best way to pass on the ITC benefits under GST to the buyer of under construction
flat/ property will be to pass on the amount of ITC benefits as has been claimed by the builders in
their GST returns and as has been deducted from the Output liability as per GST returns which will
be accurate and can be explained on the basis of claims of ITC benefits in the GST return.
The amount of ITC as claimed in the GST return and as deducted from the payment to the
Government against the GST collected from buyers at the rate of 18% on 2/3rd value of the receipts
may be passed on to the buyer of under construction flat/ property on month to month basis in the
ratio of amount receivable from different buyers as on 1st July 2017. Further, provision of ITC
benefits must be kept for unbooked flat/properties and the same has to be passed on to the buyer of
such unbooked unit as soon as the same are booked.

Lastly if in the meantime the project gets completed and completion/occupation certificate for the
project is received by the builder but there are still some flat/properties unbooked (which are now
not under construction) and the same are booked after completion/ occupation certificate is received,
then no GST is to be charged on the same. The balance amount remaining in the provision of ITC
benefits for unbooked units must be distributed/ paid to the Flat/Property buyers who had booked the
same as “under construction” units in the ratio of the amount paid/ payable by them after 1st July
2017.
Price Wise – Stage Wise ITC available and to be passed to flat/ property buyer
Example: Considering that a Flat is of 1,000 Sq.ft area, the following examples explain as to how the GST
will impact the flat buyer in under construction property where balance work is to be done. Assuming that the
cost of material is Rs. 1200/- and cost of labour is Rs. 300/-. The prices of the flats changes due to cost of land
at different locations where the cost of land is high/low.
Example No. 1
Price: Rs. 4,000/- per sq.ft
Flat Size: 1,000 Sq.ft
Total Price of Flat: Rs. 40,00,000/-
(All amount in Rupees)
Balance work to
be done on 1 % work 10% work 50% work 90% work 100% work
1/7/2017 remaining remaining remaining remaining remaining

A) GST collected 4,80,000 4,80,000 4,80,000 4,80,000 4,80,000


from flat buyers @
12%
B) GST input 0 0 0 0 0
credit on land
C) GST input 0 0 0 0 0
credit on labour
assuming cost @
Rs. 300/- per sq.ft
D) GST input 2,160 21,600 1,08,000 1,94,400 2,16,000
credit @18%
(approx.) on (1200 X (1200 X 1000 (1200 X 1000 (1200 X 1000 (1200 X 1000
materials 1000 X 18% X 18% X 10%) X 18% X 50%) X 18% X 90%) X 18% X
assuming cost @ X 1%) 100%)
Rs. 1,200/- per
sq.ft to builders
and to be passed
on to flat buyer
E) GST input 2,160 21,600 1,08,000 1,94,400 2,16,000
credit passed on to
flat buyer
F) Net GST paid 4,77,840 4,58,400 3,72,000 2,85,600 2,64,000
by flat buyer
(A-E)
G) Net GST % to 11.95% 11.46% 9.30% 7.14% 6.60%
be paid by flat
buyer under GST
regime
(F / 40,00,000
(price of flat) x
100)
H) Tax % paid by 5.5% 5.5% 5.5% 5.5% 5.5%
flat buyer prior to
GST (Service Tax
+ VAT)
I) Increase in tax 6.45% 5.96% 3.80% 1.64% 1.10%
burden on flat
buyer due to GST
Example No. 2
Price: Rs. 5,000/- per sq.ft
Flat Size: 1,000 Sq.ft
Total Price of Flat: Rs. 50,00,000/-
(All amount in Rupees)
Balance work to
be done on 1 % work 10% work 50% work 90% work 100% work
1/7/2017 remaining remaining remaining remaining remaining

A) GST collected 6,00,000 6,00,000 6,00,000 6,00,000 6,00,000


from flat buyers @
12%
B) GST input 0 0 0 0 0
credit on land
C) GST input 0 0 0 0 0
credit on labour
assuming cost @
Rs. 300/- per sq.ft
D) GST input 2,160 21,600 1,08,000 1,94,400 2,16,000
credit @18%
(approx.) on (1200 X (1200 X 1000 X (1200 X 1000 X (1200 X 1000 X (1200 X 1000X
materials 1000 X 18% 18% X 10%) 18% X 50%) 18% X 90%) 18% X 100%)
assuming cost @ X 1%)
Rs. 1,200/- per
sq.ft to builders
and to be passed
on to flat buyer
E) GST input 2,160 21,600 1,08,000 1,94,400 2,16,000
credit passed on to
flat buyer
F) Net GST paid 5,97,840 5,78,400 4,92,000 4,05,600 3,84,000
by flat buyer
(A-E)
G) Net GST % to 11.96% 11.57% 9.84% 8.11% 7.68%
be paid by flat
buyer under GST
regime
(F / 50,00,000
(price of flat) x
100)
H) Tax % paid by 5.5% 5.5% 5.5% 5.5% 5.5%
flat buyer prior to
GST (Service Tax
+ VAT)
I) Increase in tax 6.46% 6.07% 4.34% 2.61% 2.18%
burden on flat
buyer due to
GST
Example No. 3
Price: Rs. 7,500/- per sq.ft
Flat Size: 1,000 Sq.ft
Total Price of Flat: Rs. 75,00,000/-
(All amount in Rupees)
Balance work to
be done on 1 % work 10% work 50% work 90% work 100% work
1/7/2017 remaining remaining remaining remaining remaining

A) GST collected 9,00,000 9,00,000 9,00,000 9,00,000 9,00,000


from flat buyers @
12%
B) GST input 0 0 0 0 0
credit on land
C) GST input 0 0 0 0 0
credit on labour
assuming cost @
Rs. 300/- per sq.ft
D) GST input 2,160 21,600 1,08,000 1,94,400 2,16,000
credit @18%
(approx.) on (1200 X (1200 X 1000 X (1200 X 1000 X (1200 X 1000 X (1200 X 1000 X
materials 1000 X 18% 18% X 10%) 18% X 50%) 18% X 90%) 18% X 100%)
assuming cost @ X 1%)
Rs. 1,200/- per
sq.ft to builders
and to be passed
on to flat buyer
E) GST input 2,160 21,600 1,08,000 1,94,400 2,16,000
credit passed on to
flat buyer
F) Net GST paid 8,97,840 8,78,400 7,92,000 7,05,600 6,84,000
by flat buyer
(A-E)
G) Net GST % to 11.97% 11.71% 10.56% 9.41% 9.12%
be paid by flat
buyer under GST
regime
(F / 75,00,000
(price of flat) x
100)
H) Tax % paid by 5.5% 5.5% 5.5% 5.5% 5.5%
flat buyer prior to
GST (Service Tax
+ VAT)
I) Increase in tax 6.47% 6.21% 5.06% 3.91% 3.62%
burden on flat
buyer due to
GST
Example No. 4
Price: Rs. 10,000/- per sq.ft
Flat Size: 1,000 Sq.ft
Total Price of Flat: Rs. 1,00,00,000/-
(All amount in Rupees)
Balance work to
be done on 1 % work 10% work 50% work 90% work 100% work
1/7/2017 remaining remaining remaining remaining remaining

A) GST collected 12,00,000 12,00,000 12,00,000 12,00,000 12,00,000


from flat buyers @
12%
B) GST input 0 0 0 0 0
credit on land
C) GST input 0 0 0 0 0
credit on labour
assuming cost @
Rs. 300/- per sq.ft
D) GST input 2,160 21,600 1,08,000 1,94,400 2,16,000
credit @18%
(approx.) on (1200 X (1200 X 1000 X (1200 X 1000 X (1200 X 1000 X (1200 X 1000 X
materials 1000 X 18% 18% X 10%) 18% X 50%) 18% X 90%) 18% X 100%)
assuming cost @ X 1%)
Rs. 1,200/- per
sq.ft to builders
and to be passed
on to flat buyer
E) GST input 2,160 21,600 1,08,000 1,94,400 2,16,000
credit passed on to
flat buyer
F) Net GST paid 11,97,840 11,78,400 10,92,000 10,05,600 9,84,000
by flat buyer
(A-E)
G) Net GST % to 11.98% 11.78% 10.92% 10.06% 9.84%
be paid by flat
buyer under GST
regime
(F / 1,00,00,000
(price of flat) x
100)
H) Tax % paid by 5.5% 5.5% 5.5% 5.5% 5.5%
flat buyer prior to
GST (Service Tax
+ VAT)
I) Increase in tax 6.48% 6.28% 5.42% 4.56% 4.34%
burden on flat
buyer due to
GST
The builders will be required to do accounting entries accordingly. Please note that the following
accounting entries are for the whole project and the same are to be made on a day to day basis. The
figures have been assumed. The accounting entries are given below:

ACCOUNTING ENTRIES FOR INPUT CREDIT UNDER GST PASSED ON TO FLAY BUYER

Entry No. ENTRY TO BE PASSED DEBIT CREDIT REMARKS

1) Bank A/c Dr 56,00,000 Amount received from Flat Buyer


To 9% CGST output on 2/3rd Amount 3,00,000 Being the amount received
To 9% SGST output on 2/3rd Amount 3,00,000 from flat buyer Mr. ABC
To Mr. ABC (Flat Buyer) A/c 50,00,000

(Being the amount received from Mr. ABC for


purchase of flat)

Purchase of Materials
2) Land Purchase A/c Dr 20,00,000 On purchase of land, building
Labour Expenses A/c Dr 3,75,000 materials, labour expenses
Material Purchases A/c Dr 15,00,000 at different GST rates assumed
CGST Input Dr 1,35,625 average rate at 18% on Materials,
SGST Input Dr 1,35,625 0% on Land and labour,
To Mr. XYZ (Supplier) A/c 41,46,250 resulting in average ITC (Input
OR Tax Credit) of 7% of total cost, including
To Landlord A/c land, labour, materials. The Cost
OR excludes overheads)
To Bank A/c

(being the building materials/ land purchased from


Mr. XYZ and labour expenses paid)

3) CGST Output Dr 1,35,625 On adjustment of Input credit with


SGST Output Dr 1,35,625 ouput liabilities
To CGST input A/c 1,35,625
To SGST input A/c 1,35,625

4) CGST Output Dr (3,00,000 - 1,35,625) 1,64,375 Payment of Net Output and Input of
SGST Output Dr (3,00,000 - 1,35,625) 1,64,375 CGST and SGST paid to Government
To Bank A/c 3,28,750

(being the net of output & input of CGST and


SGST paid to Government)

5) GST benefit passed on to the Flat Buyer's A/c Dr 2,71,250 On passing benefit to Flat Buyer
To Mr. ABC A/c (Flat Buyer) 2,71,250

(Being the GST Input benefit passed on to the flat buyer)


ACCOUNTING ENTRIES FOR INPUT CREDIT UNDER GST LIABILITY AGAINST PURCHASES FROM UNREGISTERED DEALERS

1) SGST input on unregistred purchaser A/c Dr 20,000 On making provision for GST Liability
CGST input on unregistred purchaser A/c Dr 20,000 against Purchases and Expenses from
To Provision for CGST on unregistered purchases A/c 20,000 unregistered dealers.
To Provision for SGST on unregistered purchases A/c 20,000

(Being the provision made for GST on unregistered


purchases, expenses etc.)

2) Provision for SGST on Unregistered Purchases A/c Dr 20,000 On Payment of GST Liability
Provision for CGST on Unregistered Purchases A/c Dr 20,000
To Bank A/c 40,000

(Being the payment of SGST & CGST made)

3) SGST Output A/c Dr 20,000 The Debit Balance in SGST / CGST will
CGST Output A/c Dr 20,000 be adjusted against the Output
To SGST Input on Unregsitered Purchases A/c 20,000 payment liability.
To CGST Input on Unregsitered Purchases A/c 20,000

(Being the GST paid on unregistered purchases transferred


to GST output)

4) GST benefit (on unresgitered purchases/expenses) A/c Dr 40,000 On passing benefit to Flat Buyer
To Mr. ABC (Flat Buyer) A/c 40,000

(Being the GST input passed to Flat Buyer)

From the above, one may see that the flat/ property buyer will be paying extra even after the builder
passes on all the Input Credit received under GST regime and the benefits vary as per price of stage of
construction. The price mainly varies due to the location of the land as the cost of land is higher at good
location. Accordingly the GST burden on buyers will be more if the cost of land is more and vice versa.

Author: CA Prabhat Seksaria


Jamshedpur