State introduces VAT on real estate

Maharashtra is trying to push value-added tax on homebuyers by passing it under a ‘composition’ scheme

The Maharashtra State Budget 2010 has proposed to introduce a ‘composition’ scheme for builders and developers, where 1% value-added tax (VAT) will be levied on homebuyers. This tax appears to be an insignificant amount. But if it is levied, the proposed tax will come with riders—buyers won’t be able to contest the legislation, and they will not be eligible for any refund once they pay this tax.

“The low rate of 1% is a sweetener for builders and developers. One of the reasons for introducing (the) composition scheme is to reduce legal resistance on the subject. Once this scheme is accepted, it cannot be fought in a court of law, since it signifies voluntary acceptance, notwithstanding whether the levy is legally tenable or not,” said Prem Chhatpar, a charted accountant.

Moneylife had reported yesterday (see here) on how builders and developers were forcing homebuyers to cough up VAT of 4.5% on their booked properties.

A few industry experts were aware that VAT was being pushed through the State Budget.

“Unless and until the Supreme Court gives a final judgement (on applicability of VAT on under-construction properties) within the intervening period, collection of this tax won’t be legal. 

“It is unconstitutional for the State government to introduce VAT on sale of immovable property, because it does not fall under their jurisdiction. The State has the power to levy tax on sale of goods or deemed sale of goods,” said Mr Chhatpar.

It is still not clear if the State government has scrapped the 5% VAT completely as there is no mention of the same anywhere in the Budget. It has introduced a fresh VAT of 1%. But the question of whether consumers who had earlier paid 5% VAT will get a refund still remains unanswered.

“The government did not say that it is bringing down VAT from 5% to 1% to help the real-estate industry. They said that they want to impose 1% (VAT) from 1st April,” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd, a real-estate consultancy.

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    COMMENTS

    Anwarali Virani

    9 years ago

    WHY THE VAT WHEN ALREADY THEY HAVE INTRODUCED THE SERVICE TAX. THAT TOO WITHOUT GIVING ANY EXTRA FACILITY FOR THE FLAT OWNERS.

    mk krishnan

    1 decade ago

    sir, i have registered an agreement with leadingn builder in mumbai in the minth of feb2010, and paid 80% before march31, now i am asking for possession, while making remaining amount, builder is charging me 5% vat on the agreement value saying tht the earlier law may come back. can you suggest what is right????
    thanks

    Prashant a salunke Chartered accountants

    1 decade ago

    Statutory compliances applicable to the builder w.e.f. 1st April 2010
    1) In Maharashtra budget VAT is imposed on builders and developers w.e.f. 01/04/2010. Under this scheme 1% VAT would be payable on the contract price of flats mentioned in the agreement of sale. However the builders and developers will not be eligible for set off under MVAT Act. This scheme shall come into force for the agreements registered after 1st April 2010.
    2) Obtaining registration under section 3 of MVAT act within one month from the date when the turnover of the dealer exceeds Rs. 5 lacs. Or obtaining registration under voluntary scheme under MAVT Act.
    3) Payment of MVAT and filing MVAT returns on half yearly basis in the year of registration and in next year as per periodicity of dealer as per rule 17 of MVAT Act.
    4) As the dealer is covered under definition of an employer by notification no.JC/HQ/1/VAT/2005/97 dated 29th August, 2005 specifying the employers for the purpose of deduction of TDS on works contracts. Therefore, builders will be liable to deduct TDS from the bills of such contractors to whom material and labour job is subcontracted.. Rate of TDS on works contract is 2% in case the contractor is registered under MVAT Act and it is 4% in case contractor is unregistered dealer.
    5) The dealer has to make the payment of Vat TDS as per rule 40 within 21 days from the expiry of the month during which tax is so required to be deducted by the dealer. The payment is to be made by challan No 210.
    6) The dealer has to issue certificate in Form 402 to the contractor.
    7) The dealer has to file TDS return in Form 405 with Joint Comm of sales tax (Admn) in whose jurisdiction the place of business of the employer is situated within 3 months of the end of the year to which the return relates. ( Rule 40 (d)
    8) The dealer has to get his books of accounts audited if the turnover exceeds Rs. 60 Lacs w.e.f.1/04/2010 under section 61 within ten months from the end of the year to which the report relates.

    Prashant a salunke Chartered accountants

    1 decade ago

    Statutory compliances applicable to the builder w.e.f. 1st April 2010
    1) In Maharashtra budget VAT is imposed on builders and developers w.e.f. 01/04/2010. Under this scheme 1% VAT would be payable on the contract price of flats mentioned in the agreement of sale. However the builders and developers will not be eligible for set off under MVAT Act. This scheme shall come into force for the agreements registered after 1st April 2010.
    2) Obtaining registration under section 3 of MVAT act within one month from the date when the turnover of the dealer exceeds Rs. 5 lacs. Or obtaining registration under voluntary scheme under MAVT Act.
    3) Payment of MVAT and filing MVAT returns on half yearly basis in the year of registration and in next year as per periodicity of dealer as per rule 17 of MVAT Act.
    4) As the dealer is covered under definition of an employer by notification no.JC/HQ/1/VAT/2005/97 dated 29th August, 2005 specifying the employers for the purpose of deduction of TDS on works contracts. Therefore, builders will be liable to deduct TDS from the bills of such contractors to whom material and labour job is subcontracted.. Rate of TDS on works contract is 2% in case the contractor is registered under MVAT Act and it is 4% in case contractor is unregistered dealer.
    5) The dealer has to make the payment of Vat TDS as per rule 40 within 21 days from the expiry of the month during which tax is so required to be deducted by the dealer. The payment is to be made by challan No 210.
    6) The dealer has to issue certificate in Form 402 to the contractor.
    7) The dealer has to file TDS return in Form 405 with Joint Comm of sales tax (Admn) in whose jurisdiction the place of business of the employer is situated within 3 months of the end of the year to which the return relates. ( Rule 40 (d)
    8) The dealer has to get his books of accounts audited if the turnover exceeds Rs. 60 Lacs w.e.f.1/04/2010 under section 61 within ten months from the end of the year to which the report relates.

    REPLY

    neha

    In Reply to Prashant a salunke Chartered accountants 6 years ago

    Hello Sir,
    I.am.booking under construction apartment in Bangalore which is under JDA with land owner.
    Builder is giving two contract of sale of land and construction .

    Could you suggest the VAT %age and calculation

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