Builders getting ITC Reversal Notices from GST Department

Learn about the recent ITC reversal notices issued to builders, implications of reversing Input Tax Credit (ITC), and compliance requirements for ongoing and new projects under GST regulations

In a recent development, numerous builders have been served with notices by the GST department, calling for the reversal of Input Tax Credit (ITC) for the fiscal years 2017-18 and 2018-19. These notices specifically target builders who have availed ITC for unsold apartments, particularly during the procurement of Building Use (BU) permissions.

The crux of the matter lies in the compliance with GST regulations, especially regarding the utilization of ITC for unsold units. Builders, especially those with ongoing projects as of March 31, 2019, were eligible to opt for the old GST rates of 8% or 12% with ITC. However, projects initiated after April 1, 2019, are mandated to adhere to the revised GST rate structure of 1% or 5%, without the provision of input tax credit.

One crucial aspect highlighted by tax experts is the necessity for builders to be well-versed with the rules governing ITC utilization. Failure to comply with these regulations may lead to receiving notices demanding the reversal of ITC, accompanied by interest and penalties.

Post-April 1, 2019, GST rates for affordable housing projects stand at 1%, subject to specific criteria such as the maximum carpet area and the gross amount levied. Non-affordable housing projects are subjected to a 5% GST rate.

Moreover, to qualify for the concessional rates of 1% and 5%, builders must ensure that a minimum of 80% of the input and input services are procured from registered suppliers.

Another critical aspect emphasized by tax experts pertains to the reverse charge mechanism for tax payment on shortfalls. Builders are liable to pay taxes on shortfall amounts under this mechanism.

Furthermore, it’s imperative for builders to procure cement solely from registered suppliers. Any procurement from unregistered suppliers would entail a 28% tax liability under the reverse charge mechanism, payable in the month of cement receipt.

In summary, builders must navigate the intricacies of GST regulations diligently to avoid facing penalties and reversals of ITC. Staying informed about compliance requirements and adhering to them is paramount for smooth operations within the real estate sector.

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