The construction industry is an essential part of the Indian economy. GST rate for the construction sector is 18%. However, deduction of land value equivalent to one-third of the total amount charged by the developer for GST calculation has been allowed. This resulted in an effective GST rate of 12%.
For the sake of simplification and rationalization of tax rates especially for the residential real estate sector, the Government in April 2019 revised the tax structure under GST to increase the demand and to reduce the burden of tax on end customer. GST Council provided this a one-time option to ongoing projects where construction and bookings started before 1st April 2019. This one-time option will allow the promoters to continue tax payment at old rates of 8% or 12% with ITC or to opt for new tax rates of 1% or 5% without ITC.
In case of Sukhbir Rohilla v. Pyramid Infratech (P.) Ltd, filed a complaint against the builder before the Haryana State Screening Committee under anti-profiteering laws of GST. They contended that Input Tax Credit on account of GST paid on construction services was not passed to the applicants. The case finally reached National anti-profiteering authority whereby it was held that the builder was guilty of profiteering.
The advance rulings on issues related to construction have witnessed a sudden hike in the GST regime. One important ruling was given in case of Maruti Ispat & Energy (P) Ltd., wherein it was ruled that no GST input tax credit of civil structure would be available, even if the same is used for support of plant and machinery. This led to an immediate increase in the cost of construction by 18%, as the credit became unavailable. This forced recipients to innovate new methods of procurement where credit would be available or they fall back to the unorganised sector for procurements leading to massive tax evasion and the further downfall of the organized sector.
Indian real estate and construction sector is struggling to survive under a stringent legal and competitive environment. The industry is completely shut down till the lockdown is over. Not only small companies but also massive corporates are facing the issues. The Indian construction industry is one of the major contributors to the economic and social growth of the nation and thereby it is the duty of government to support the livelihood of millions by announcing a relief package for the industry during these challenging times.