Confusion over GST payment

Home buyers are aware that after getting the Occupancy Certificate (OC), they need not pay GST. Hence, most people prefer to buy flats which have OC. However, the authorities are giving notices to the developers for selling flats in the projects that have obtained OC, asking them to pay GST. Now, the builders are banging their heads as they are in utter confusion on road ahead. It is now learnt that many developers are trying to get clarification on this issue by meeting Union Finance Minister Nirmala Sitharaman.

With the series of raids being conducted by the Commercial Taxes officials, the construction sector of Hyderabad is in turmoil. The developers who were surprised to receive notices to pay GST even on the projects that have received the OC, are demanding to know why they are asked to pay GST after obtaining the OC. Earlier, the officials said that GST collection was mandatory on plots as well. But later, judgments were given stating that it was not necessary. Developers are now seeking the Centre to clarify and end the confusion over GST payments. They are irked as to why the rules are being changed every other day

On the developers’ flats?

It is a known fact that to build a project, developers enter into agreement with the landlords and construct apartments. According to the agreement, each of them sell their share of flats respectively. The developers collect the GST from buyers and deposit it to the government treasury. But the real problem lies with sale of flats from the landlord’s share. While many landlords do not pay GST on the flats they sell and are asking the developers to pay it, the developers are arguing that why should they pay GST on the landlord’s share of flats. However, the authorities are giving GST notices to the builders instead of the land owners and collecting the same forcibly. In certain cases, some land owners are even filing cases against the developers.

No need for GST after getting OC

In Hyderabad, the developers are not collecting GST from buyers while selling flats after receiving the Occupancy Certificate. But, they are now shocked that the authorities were conducting raids as if they are flouting norms and being forced to pay GST on these flats as well. In fact, the city developers are already taking steps to maintain transparency in transactions. Upon collecting GST from buyers, the amount is being paid the Commercial Taxes department promptly. But, they are lamenting that it was not justifiable to charge GST on the flats sold by the land owners. They are seeking clarity on whether the GST should be paid during the development agreement or after selling the flats. The Central government is requested to issue specific guidelines on this.

Who is evading taxes?

Do you know why some buyers prefer to buy flats or villas from landlords, but not developers? The main reason for this is that many land owners in an expensive areas like Gachibowli, are registering the plots based on the government’s registration value rather than the market value. For instance, a builder is selling a flat in Gachibowli at Rs 8,500 per sq.ft. In the same project, the landlord is selling the flats by reducing the price by Rs 500 per sq.ft. Further, the registration is being done at the rate of Rs 3,000 per sq.ft which is the government registration value. Thus, the landlord is evading stamp duty on a huge amount charged at Rs 5,000 per sq.ft. As GST is also not paid, the buyers will benefit financially. As a result, the government is lot of revenue. To avoid this, there is an urgent need for the GST authorities to focus on such wrong practices.