Builders Receiving GST Notices to Reverse Input Tax Credit Amid Compliance Scrutiny

The GST department has issued notifications to numerous construction firms, instructing them to reverse the input tax credit (ITC) claimed for the years 2017-18 and 2018-19. These notifications specifically relate to the ITC claimed on unsold units at the time of receiving Building Use (BU) permission. Developers are directed to reverse the ITC for units sold after obtaining BU permission, as GST payments were not made for these units. As a result, developers are advised against claiming ITC for such units.

According to a reliable source, several developers have been singled out for claiming excessive ITC during the 2018-19 period. It’s important to note that the option of GST rates at either 8% or 12% (with ITC) was available only for ongoing projects as of March 31, 2019. Projects commenced after April 1, 2019, must adhere to GST rates of 1% or 5% (without ITC). However, GST does not apply to unit sales after BU permission is obtained.

Instances have been identified where developers claimed full ITC when they were eligible for lower rates, leading to the issuance of notifications by the department. Developers who receive such notifications are advised to reverse ITC along with interest and penalties, as mandated by the law. A lack of awareness about ITC rules among developers has been cited as a contributing factor to these discrepancies.

Following April 1, 2019, GST stands at 1% for affordable housing projects meeting specified criteria, while non-affordable housing projects are subject to a 5% GST rate. To qualify for concessional rates, it is essential that at least 80% of inputs and input services are procured from registered suppliers. Shortcomings in this regard necessitate developers to pay taxes under the reverse charge mechanism.

Moreover, cement procurement must strictly be from registered suppliers. If sourced from unregistered entities, developers are liable to pay a 28% tax under the reverse charge mechanism, with payment due in the month of cement receipt.