GST Dept Scrutinizes Real Estate Developers' Expenses for 2017-18

25 Oct 2023 CW Team

That year, residential real estate was subject to a 12% GST rate, providing developers the option to apply for an Input Tax Credit (ITC). Developers may have manipulated the system by obtaining phony invoices in order to increase their costs, but there is no way to verify suppliers' GST compliance.

According to a senior official in the state's GST department who spoke on the record on the condition of anonymity, about 20,000 letters were sent to taxpayers in Gujarat whose tax returns were being reviewed. This project was launched as the deadline for issuing notices for fiscal year 2017-18 approached.

According to Section 73 of the GST Act, a large majority of these correspondences were directed at builders and covered both the 2017-18 and 2018-19 fiscal years. Our inquiry discovered that numerous developers had falsified supplier invoices in order to exaggerate their expenses. We have put in place robust monitoring mechanisms to detect such fraudulent transactions. Developers are given the option of either offering a defense or not for these transactions or remitting the applicable tax charges.

Chartered Accountant Karim Lakhani provided context, elucidating that, “At the outset, the GST rate for residential real estate stood at 12%, enabling developers to transfer the Input Tax Credit (ITC) advantage to purchasers. Nevertheless, in 2019, the central government modified the GST rates to 1% for affordable housing and 5% for other types of residential properties. In the course of this transition, numerous ongoing projects were granted the flexibility to opt for either the previous or the updated tax frameworks, resulting in a convoluted tax scenario for developers.

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The State GST department has sent about 20,000 notifications to a variety of taxpayers from various industries, focusing mostly on real estate developers, asking explanations for their expenses during the 2017-18 fiscal year. GST officials believe that this scrutiny is the result of a lack of a reliable mechanism to track suppliers' GST compliance at the time.That year, residential real estate was subject to a 12% GST rate, providing developers the option to apply for an Input Tax Credit (ITC). Developers may have manipulated the system by obtaining phony invoices in order to increase their costs, but there is no way to verify suppliers' GST compliance.According to a senior official in the state's GST department who spoke on the record on the condition of anonymity, about 20,000 letters were sent to taxpayers in Gujarat whose tax returns were being reviewed. This project was launched as the deadline for issuing notices for fiscal year 2017-18 approached.According to Section 73 of the GST Act, a large majority of these correspondences were directed at builders and covered both the 2017-18 and 2018-19 fiscal years. Our inquiry discovered that numerous developers had falsified supplier invoices in order to exaggerate their expenses. We have put in place robust monitoring mechanisms to detect such fraudulent transactions. Developers are given the option of either offering a defense or not for these transactions or remitting the applicable tax charges.Chartered Accountant Karim Lakhani provided context, elucidating that, “At the outset, the GST rate for residential real estate stood at 12%, enabling developers to transfer the Input Tax Credit (ITC) advantage to purchasers. Nevertheless, in 2019, the central government modified the GST rates to 1% for affordable housing and 5% for other types of residential properties. In the course of this transition, numerous ongoing projects were granted the flexibility to opt for either the previous or the updated tax frameworks, resulting in a convoluted tax scenario for developers.

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