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The slump in the real estate market has continued after the implementation of Goods and Services Tax (GST). Developers have been trying new tricks to attract home buyers ranging from price cut to payment flexibility. The latest innovative way to lure customers is by allowing them to circumvent GST, which is levied at the rate of 12 per cent on under-construction properties.
According to a report in The Times of India, in order to avoid GST, a few builders have been showing booking amount as a loan given by the buyer to its subsidiary company. After the building gets completed and the occupation certificate is received the builder gives back the amount to the purchaser with interest. The client then pays back the entire money to the construction firm. The practice could be dangerous in the trust-deficit real estate industry where developer or homebuyer can anytime be backed out of their commitment.
Experts say the initial few months of the implementation of GST was full of confusion because developers were not sure how much benefit they can get out of input tax credit and new raw material prices. But many developers gradually understood the new tax regime and started offering the discount of 4 to 6 per cent to customers. There are, however, developers that are not passing on the benefit and instead of entering into a shoddy paperwork with buyers.
Anuj Puri, chairman of Anarock Property Consultants was quoted as saying. “In one variable, a homebuyer enters into a deal with the developer and subsequently, after receipt of the occupation certificate, the deal is cancelled and a fresh agreement is signed between the two parties. While reputed developers are steering clear of such deals because of the obvious potential legal pitfalls, a few smaller players are engaging in such practices to avoid GST and attract buyers.”
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