GST fallout: Home buyers worried as builders ask for full payment before July 1

The government on Thursday asked builders to pass on the benefit of lower tax under the GST system to buyers by reducing prices and instalments, otherwise the action will be violative of the anti-profiteering clause.

"I want to make it clear that cost of land in cities like Mumbai is not cheap. That's why the prices of houses in Mumbai or nearby areas are not falling. According to the new circular, the builder has to pass the input credit to the buyers. Those who won't do so will face legal action but I feel the government should have given us some breathing space after the note ban and RERA," said Rajan Bandelkar, Director Raunak Group.

Despite the government's orders, Shashi Kotian and Jasmine who bought a house recently have been asked by their builder to make a seperate payment apart from the loan before June 30.

The dream to own a house is set to get costlier once GST gets implemented as buyers will have to pay 12% GST. The current headline rate of service tax on construction of flats, residences, and offices is 4.5 per cent.

The government's clarification came as the government said that the Central Board of Excise and Customs (CBEC) and states have received several complaints that in view of the works contract service tax rate under GST at 12 per cent in respect of under-construction flats and complexes, people who have booked flats and made part payments are being asked to make the full payment before July 1 or face higher tax.

"Despite this clarity, if any builder resorts to such practice, the same can be deemed to be profiteering under Section 171 of the GST law," the statement said.

"We are worried about how to get the extra fund to pay the builder. If we pay it now, we may certainly save the GST tax but will have to bare the crunch for it and if we fail to do so, will have to shell out more," said Kotian.

Shashi and Jasmine had planned their investments keeping the construction period of their new home in mind but if they break their FDs today, they would be losing the interest on it and the investment will be a dead investment. Shashi has also invested in the equity market but because market is on the down side, he can't redeem his shares or mutual funds too.

The prices of houses were expected to come down after the implementation of GST as the government has begun to provide builders with subsidy on raw material in the form of credit inputs. Under the GST, the full input credit will be available for offsetting the headline rate of 12 per cent.

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