The Maharashtra government has launched an aggressive drive to recover value-added tax (VAT) from builders and developers on the sale of under-construction flats during June 2006 and March 2010.
The government has mopped up Rs 600 crore from the realty players since 2006, and hopes to recover another Rs 1,000 crore.
The government has ruled out any relief for the developers, making it clear that VAT would work out to much less than five per cent of the agreement value after adjustment of set-off. However, the developers are also required to pay interest for late payment of taxes. A senior government official told Business Standard, “If sales take place after construction, which is after receipt of the occupancy certificate, then the tax is not applicable on such flats or commercial complexes. The liability to pay VAT is on the developer. It is not contingent on collection by developer.”
VAT BOMB ON BUILDERS
•Govt hopes to mobilise additional Rs 1,000 crore
•Rs 600 crore recovered for tax liability since 2006
•Liability to pay VAT on developers
•Realty players estimate new burden on a customer who bought a flat at Rs 50 lakh works out to at least Rs 2.5 lakh
The government official said during recent raids on some builders and developers, it was revealed that they had already collected VAT from home buyers but not paid the money to the treasury. The Maharashtra Chamber of Housing Industry (MCHI)-Confederation of Real Estate Developer’s Association of India (CREDAI) has claimed that each flat buyer in Maharashtra would have to pay up to five per cent additional tax. The new burden on a customer who bought a flat at Rs 50 lakh works out to minimum of Rs 2.5 lakh. According to MCHI-CREDAI official, the developers have started serving notices on those who purchased flats between 2006 and 2010 for payment of VAT.
What has come in handy for the state government is the Bombay High Court order of April 10, 2012, in which the court upheld the constitutional validity of the amendment made by the state government in the definition of “sale” under the Maharashtra Value Added Tax Act, 2002, with effect from June 20, 2006.
The government has said builders and developers can pay tax liability under the composition scheme. A developer would have to pay five per cent tax on the agreement value. Land deduction is not available. Input tax credit is available subject to conditions. Secondly, the deduction of labour and service is available on actual basis. Set-off would be calculated, subject to conditions. Thirdly, the deduction of land cost would be allowed. Thereafter 30 per cent standard deduction from remaining amount would be available according to proviso to sub-rule 1. Set-off would be calculated subject to conditions.
However, in case of tax liability after April 1, 2010, the government has given an additional option whereby the developers would have to pay one per cent tax on agreement value without any land deduction and input tax credit.
MCHI-CREDAI official said they are eagerly waiting for the outcome of an hearing slated for August 28 on special leave petition filed by MCHI-CREDAI against the Bombay High Court order.