The Union Budget for the current fiscal year has been announced! Also reflected in the Budget is a number of changes in indirect taxes. CW highlights the vital changes and its impact on the construction, real estate and infrastructure sectors.
The constitution of India provides three lists; the third is a concurrent list in which both the Central and state governments can legislate. That said, real estate and construction are part of the third list. Hence, while the Union Budget addresses the issues related to construction – central taxes and central regulatory – the real challenge lies with the state government as this is a matter largely related to the state. To this, MS Mani, Senior Director, Deloitte, says, “It also has to obtain two aspects – permission of the Reserve Bank of India and fulfilling foreign exchange management norms. Both these aspects are under the prerogative of the Central Government. But in terms of local laws, labour laws, approvals from municipal corporations, etc, all these aspects come under the prerogative of the state governments and municipal corporations on which not enough has been done.”
On its part, the Central Government has been encouraging these sectors to grow by liberalising investment into these through foreign institutional investors, equity investors, etc. Following is a detailed analysis of the changes in indirect taxes proposed in the Union Budget 2014 and its impact on the sector.
To determine the value of goods involved in the execution of works contract from the total contract value, the cost of land was not required to be deducted
Clarity in valuation of goods involved in the execution of Works contract provided after the judgment of Honble Supreme Court in the case of Larsen and Toubro v. State of Karnataka
There was no such provision prior to the amendment
If the dealer proves that actual involved in the execution of works contract cost of land is higherthan that determined in acordance with the Annual Statement of Rates prepared under the provisions of the Bombay Stamp Rules, 1995, then the excess tax paid,
Where the registered dealer undertakes construction of flats, buildings, dwellings or premises and transfer them along with the land, then the value of goods involved in the execution of works contract shall be determined after applying the below mentioned percentage depending upon the stage at which the purchaser entered into the contract as:-
-Before issuance of the commencement certificate : 100%
-From the commencement certificate to the completion of plinth level: 95%
-After the completion of plinth level to the completion of 100% of RCC framework : 85%
-After the completion of 100% RCC framework to the Occupancy Certificate : 55%