After a long break due to countrywide lockdown, the National Anti-Profiteering Authority (NAA) has renewed exercising stricter orders on property builders for not reducing home prices to extend tax benefits following the imposition of goods and services tax (GST) in 2017. In this month, the profiteering regulator has ordered two developers to lower prices of flats to pass on the profiteered amount to buyers with 18% interest. The penalty clause was included in January and is not retrospectively applicable and hence NAA is retracting orders imposed before.
In the pre-GST era, the independent taxes of central and state governments added up to 5.5%-6.5%, but in the new system, the rate was cumulatively kept at a steady 12% with the benefit of the input tax credit. The GST Council withdrew the input tax credit and reduced tax rate from 12% to 5% and in the case of affordable housing projects, from an effective 8% to 1% from April 2019, post the observation that builders had escalated prices and were not providing the tax credit benefits to consumers. Under the GST which was effectively actualized on 1 July 2017, builders were allowed to offset a part of the tax outgo on under-construction flats with the credit for taxes paid on building materials and services, a facility not offered in the previous tax regime.
Finance Act 2019 rolled out a penalty of 10% of the profiteered amount, effective from 1 January 2020, which is applicable only if the profiteered amount is not deposited within 30 days of NAA order. ”Legally speaking the specific inclusion of a provision from the prospective date means the absence of the same before the date. NAA accepts this argument in a number of cases and has held that no penalty be imposed for contravention of profiteering provisions before 1 January 2020.” said Rajat Mohan, the senior partner at chartered accounts firm AMRG and Associates.