Mumbai Flat Buyers( 06 – 10) : Hope to pay less VAT

06-’10 flat buyers may have to pay less VAT

Govt May Waive Registration Delay Penalty

Rajshri Mehta TNN

     Mumbai: People who brought properties in under-construction projects between 2006 and 2010can relax a little.

     Fresh calculations by the sales tax department peg the value-added tax (VAT) they have to pay at .5% to 3% of the value of the property mentionedin the agreement.Developers, most of whom are affiliated to Maharashtra Chamber of Housing Industry (MCHI), however, maintained that the amount worked to 5% or more.

      The second reason for cheer is the indications from a government source that it might waive the penalty for delayed payment of the tax component, thereby benefiting the buyers. Before 2006, no VAT was levied on property sale. The state introduced it in 2006 after the Supreme Court passed an order in 2005, putting developers andcontractorsin the samebracket.
The tax liability, say officials, varies because of several parameters such as construction costs incurred by developers (who collect the amount from buyers) after deducting the land price, which accounts for almost 70-80% of the total costsin Mumbai.

     The tax liability will go up in proportion to the construction cost, meaning, buyers will have to pay more as tax if they bought their properties and registered them later; construction costs have steadily been increasing in Mumbai.

      Both developers as well as government officials agree that it was the buyers who are caught in a battle between them. The interest that buyers will now pay—if they delayed registering the property after its purchase—isbecauseof the case that was going on in court and the developers’ confidence about winning it.

      The MCHI and Confederation of Real EstateDevelopers’ Association of India (Credai) have, nevertheless, moved the apex court, challenging the constitutional validity of the government’s move to term developers as contractors andlevy VAT.Likein mostindustries,thehugetax is being passedon totheenduser.

      Buyers are fighting back in whatever way they can. Some havestartedwriting blog posts, whileothers are meeting developers, telling them about their predicament. “We are suffering because of the fight between developers and the government,” a buyer in Malad said. Tax officials pointed out that since April 2012, when the order was passed againstdevelopers,13 buildershadcollected fullliability of Rs20crorefrom consumers but did not deposit it with the department. Asked a buyer, “Why should we pay interest,when wehave already paid the tax amounts to the developers?” “We have already paid huge deposits. The developers can pay the VAT out of the interest,” a buyer from Powai said. Maharashtra Societies Welfare Association chairman Ramesh Prabhu, too, said buyers, especially those who had not yettaken possession of their properties, would now haveto pay hightaxes.

      Developers, however, stuck to their stand. Ashok Mohanani, CMD of Ekta World, said, “The fault lies with the three complicated schemes to compute VAT drawn up by the sales tax department,whichhaveincreasedtheliability toover 5%. Contrary to the department’s claim,they are notoffering any tax benefits to any of the schemes. We have to pay double taxes for the same goods the value of which has increasedover a periodof time.” ADDING VALUE TO PROPERTY 

     The VAT is applicable only on an under-construction property

      Your tax liability varies between .5% and 3% depending on several factors such as the cost of the property and the value of the land on which it is built

     You will have to pay an interest of 15% on your tax component for every year of delay in registering your property. For example, if your tax component was Rs 1 lakh and you bought the property in 2009 but registered it in 2010, then you will have to pay Rs 1.15 lakh (15% interest on Rs 1 lakh for one year)

     The sales tax department may decide to waive the penalty for delayed payment; discussions are on

     There may be a small variation in the tax component because of differences in factors such as construction cost, which has been increasing steadily; this will increase the tax if you bought the property, for example, in ’08 instead of ’06

    LEGAL TUSSLE

      2006: Maharashtra government amends Value Added Tax Act, 2002 and levies VAT on the sale of immovable properties by developers

     2007: Maharashtra Chamber of Housing Industry (MCHI) and Confederation of Real Estate Developers’ Association of India (Credai) challenge the government’s decision in the Bombay high court

      2007: Court passes interim order that developers should submit to sales tax department details like number of flats, amounts received, goods purchased from “dealers” registered or unregistered and amounts of VAT paid on such purchases

     2009: Maharashtra government issues notification for computing VAT, the value of which is based on ready reckoner rates 2010: Government introduces composition scheme of VAT at 1% of agreement value

    2012: Bombay high court dismisses MCHI’s petition

    2012: MCHI challenges constitutional validity of the government to levy VAT. Their contention is that the state legislature has no power and erred in terming the sale of immovable property as work contract under the provisions of Sale of Goods Act, 1930 of the Constitution

     Aug 28, ’12: Supreme Court to hear special leave petition

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4 Responses

  1. This does not looka transparent way to collect tax…

    The government has declared tat 5 % VAT is payable. So the builder will collect from the customer the amount equal to 5% (say Rs 5 laks for a flat vauled at 1 Cr). He will claim set-off for land, purchased etc and as published in newpapers and the govt clarity this is unlikely to be 70% of value. As a result he pays 1.5 Lacs to govt. What happens to 3.5 Lacs . The customer pays Rs 5 L but only 1.5 L goes to govt and the rest to builder. How can the government levy a tax where the beneficiary is the builder.. I hope I am WRONG and would like someone to clarify.

    But it astonishing how customers are being burdened with retrospective taxes and to TOP it all the TAX collected does not reach the govt treasury. The govt if it has to levy should ament it to a Flat 1% of the agreement value. Atleast the system is transparent and all the money collected will reach the govt – and that a big solace.

  2. yes Rajiv, This is very true,as the builders are not even showing the calculationof the taxes to the flat byers.

    i should have been that the builder pay the taxes to the govt per building & then distribute it to per flat as per the area of the flat & its costs.but they are not listening to the choas of the common people ,as they are looking at making money in this too.

    Secoundly if the same is to be paid by the buyer then let the flat buyer payer it to the govt on the ready recknor rate & show the receipt to the builder.

  3. […] Mumbai Flat Buyers( 06 – 10) : Hope to pay less VAT 2View Post […]

  4. Once a builder gets registered in sales tax get tin no, then he will have to give proper invoice with qty(sq ft) & exact calculation to recover vat
    No profit can be made on tax collection,

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