Fringe benefits availed by employees liable to GST

The new Goods and Services Tax (GST) will be applicable on any non-monetary fringe benefit an employee gets from his employer, the government said today.
Monetary compensation paid to employees is not considered supply and will not attract GST, the Central Board of Excise and Customs (CBEC) said in the latest round of clarification issued in form of frequently asked questions (FAQ).

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The monetary income will, however, continue to attract the relevant income tax.
"The compensation to employees in the form of money is not a supply. However, fringe benefits are a supply of goods or services and are liable to tax if not exempted," the CBEC said.

The fringe benefits are transactions in furtherance of business. "Even if supplied without consideration, the same are deemed supply" and will attract GST, it said.
On rental income, it said GST will not be levied on the rental income of less than Rs 20 lakh in a year.

"That said, where the rental income from a single property is less than Rs 20 lakh but the aggregate rental income from various properties exceed Rs 20 lakh, the requirement for registration and GST payment will be there," it said.
According to the FAQ, no GST is chargeable if free replacement is provided by a business to customers without consideration under warranty.
Also, goods sent for a demonstration on returnable basis would not be considered supply as there is no transfer of title involved.
But, if some element of service is involved, the same will be a taxable supply, it said.

Equipment and instruments sent to manufacturers'' factory for repairs and calibration within India on returnable basis would mean no sale has taken place. And challan for movement of goods without supply is to be issued for such items.

On penalties levied on late or delayed payment of loans and advances, the FAQ said penal interest is a consideration for tolerating an act and it is a supply of service and will be taxable.

It prescribed that GST has to be paid by a job worker on job work charges only.
Also, GST would be charged on labour charges in an invoice.
Illustrating on how GST is to be levied, the FAQ said if laptop bag is supplied along with the laptop in the ordinary course of business, the principal supply is that of the laptop and the bag is an ancillary.

"Therefore, it is a composite supply and the rate of tax would be that as applicable to the laptop," it said.
Recipient of online database access services from a company abroad over the net would have to pay the applicable Integrated-GST (IGST) tax on reverse charge basis.

In case the recipient is not registered, "the matter is treated as an online transaction and database access or retrieval services (OIDAR) and the OIDAR service provider is liable to take registration and pay tax," it added.

Source: https://goo.gl/66mP5N

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The Impact of GST on Residential Real Estate

The switchover to the GST regime is undoubtedly one of the biggest tax reforms in post-independence India. It replaces the multiple taxes levied by the central and state governments and will become subsumed of all the indirect taxes, including central excise duty, commercial tax, octroi tax/charges, Value-Added Tax (VAT) and service tax.

GST has been predominantly conceptualized around a ‘One Nation, One Tax’ philosophy and will:

• Help eliminate the previous cascading tax structure
• Ease compliances
• Create uniform tax rates and structure, and
• Help in reducing additional tax burdens on consumers.

However, the biggest game changer in GST is the introduction of Input Tax Credit, whereby credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition. This makes GST fundamentally a tax only on value addition at each stage.

Impact on Residential Real Estate

To say the least, the Indian real estate sector has been going through a significant transformation in the recent times. The recently implemented Real Estate and Regulation Act (RERA) has already started addressing the issue of non-transparency and affixes a level of accountability on real estate builders and brokers which are unprecedented in the history of the Indian property sector.

For the residential real estate sector, the implementation of GST will definitely be a positive sentiment booster among property buyers. GST may not be instrumental in bringing down the prices of residential real estate over the short term. However, it will benefit all the stakeholders of the residential real estate sector, as the perception of the sector will improve on the back of a simplified tax structure and accountability being fixed at every stage.

Benefit to Property Buyers

A simple and transparent tax applied on the purchase price is the biggest take- away for property buyers. Under the GST regime, all under-construction properties will be charged at 12% (excluding stamp duty and registration charges). It will not apply to completed and ready-to-move-in projects, as there are no indirect taxes applicable in the sale of such properties.

VAT (with rates differing from one state to another) and Service Tax together accounted for 7-9% of the ticket price for a residential property, which is 3-4% lower than the GST rate. However, due to information asymmetry, consumers were largely unaware of how VAT and service tax is calculated – definitely, the entire tax calculation was too complex for people to understand.

Any real estate product comprises of three expense components, namely land, material, and labour or service costs. VAT is calculated on material cost, and service tax is calculated on labour and service cost. It is very difficult for buyers to ascertain what components were included for calculation of VAT and service tax.

The implementation of GST makes the calculation much simpler since the buyer has to pay only a single Goods and Services Tax. Also, the builder must pass on the benefit of the price reduction he enjoys due to input tax credit to the buyer.

Impact on Affordable Housing

The affordable housing sector, which is a major thrust area of the incumbent Government and is the cornerstone of its ‘Housing for all by 2022’ vision, will not be impacted by GST. This has been clarified by the announcement from the Finance Ministry, which indicates that there will be no tax under GST for housing projects which come under the affordable housing scheme.

Benefit to Developers

In the previous tax regime, real estate developers also grappled with the challenge of multiple taxations. On various construction materials they purchased, builder paid customs duty, central sales tax, excise duty, entry tax, etc., thus creating various instances of multiple taxations. The cumulative burden eventually got passed on to the buyer.

GST will eliminate all the other taxes, and the benefit of being able to claim input tax credit can also improve developers’ profit margins.

Major construction materials have not seen a major change in tax rate.

• Cement will be taxed at the rate of 28% under GST, which is higher the current average rate of tax around 20-24%
• Iron rods and pillars will be charged at the rate of 18%, which is similar to the average rate of 20% under the old taxation regime
• Paint, wall fittings, plaster, wallpaper and ceramic tiles will be taxed at 28%, which is also similar to the previous average rate of 20-25%
• Sand lime bricks and fly ash bricks will be taxed at 5%, which is lower than the previous rate of 6%.

However, the marginal change in the percentage of these variables will make a huge difference as transportation and logistics costs reduce in the single taxation system.

To conclude

While there might be a marginal impact on the real estate sector in the near term, we are definitely looking at a significant improvement in buyer sentiment and perception of this sector. Developers too will find the GST regime much simpler to work with, with the benefit of input tax credit being an added advantage.

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You may consult with the Tax Consultant in India/ Tax Advisor in India for any kind of help regarding GST.