Fraudulent practices in Housing Projects: GST
Payment of GST in cash by top builders is as low as 0.4 per cent, according to an analysis carried out by tax authorities. It was also learnt that many builders may be using fake invoices to get higher input tax credit (ITC).
Tax payment by a GST assessee has two components, set-off against ITC and the balance that is to be paid in cash. Cash component is key for revenue trend which means if cash component is low, overall collection will be affected. Now the big question is what should be the cash component. To find this answer, tax authorities used data provided by NBCC (a Government-owned real estate developer) and CPWD (a Central Government department for construction management) to suggest that expected cash component should be 5 per cent or more.
For this benchmark, the officials analysed tax payment details from GSTR-3B return of top 88 builders in India. These builders are based in seven CGST Zones — Meerut (Noida), Bengaluru, Kolkata, Chennai, Hyderabad, Bhubaneswar and Mumbai. Kindly refer image.
ITC claimed by developers is much higher than what should be the ITC as per the NBCC and CPWD data. There are 2 reasons. First, the sector is highly evasion prone where ‘ITC is claimed on fake invoices.’ Second, slow moving inventory leads to higher ITC utilisation as ‘the construction is taking place without sale.’ Accordingly, it was suggested to bring down the GST rate to 5 per cent without ITC credit. This was accepted by a Group of Finance Ministers (GoFM).
Presently GST system for housing projecting
At present, there is a three-tier structure for housing projects — there is no GST on sale of complex/building and ready to move-in flats where sale takes place after issue of completion certificate by the competent authority. GST is applicable on sale of under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale. Card rate for such flats is 18 per cent, but effective rate is 12 per cent after abatement of 33 per cent (cost of land). And, in the affordable housing category the effective rate is 8 per cent. Both these rates are with full input tax credit (ITC).