Even as confusion prevails over Value Added Tax (VAT) on property purchased between June 20, 2006 and March 31, 2010, there is panic among flat buyers who have, over the last few days, received notices from developers asking them to pay arrears. While most are not sure about the quantum of payment, others are wondering where they will arrange funds from. A section of flat buyers is also contemplating litigation.
According to a sales tax official, the Bill to levy 5 per cent VAT was passed around six years ago, but its implementation and recovery of tax was stuck as developers moved court against it. About a month ago, the Bombay High Court ordered the developers to pay the amount due by August 31, 2012 or pay interest and penalty. Developers, however, challenged the order in the Supreme Court.
“As the matter was stuck in court for years, most developers introduced safeguards in the buyers’ agreements,” said N Mehta, a property consultant from Ghatkopar. “First, a clause was added to the agreement that all taxes levied in future — even retrospectively — will be payable by the buyer and; second, a bank guarantee or an undertaking to pay the same was taken from all those customers who booked the flat during that specified period,” he said.
In its interim order, the apex court granted temporary relief to developers by extending the payment deadline to October 31. However, the court did not grant any concession in the percentage or amount of the tax payable.
“As per the norms, the actual and applicable amount will be in the range of 0.8 per cent to 1.3 per cent,” said Anand Gupta, honorary general secretary of the Builders’ Association of India (BAI) and a developer himself. “However, this will depend mainly on the tax payments so far, project location, services hired, material procured and agreement value of the flat of that particular developer,” he said.
The sales tax department estimates the net amount will be in the range of 1 to 3 per cent on the same criteria. Other developers say the range could be from 0.5 per cent to 2 per cent. “Earlier, due to penalty and interest, the percentage was higher, but with none of that applicable if the tax is paid by October 31, the percentage will come down significantly,” said Gupta.
“We paid 5 per cent of the agreement value then. Now, we hear that the percentage will be lesser. I am not sure if my developer will disclose the actual tax he pays to the authorities. He may not even refund the difference to us, let alone the interest. We are planning to talk to lawyers to understand if we can get some money back,” says Deepak Bheda (name changed) who booked a flat in a tower in Kandivali along with a few others in 2007.
“We have received the letter from the builder to pay the tax immediately. The amount runs into thousands of rupees and it will be difficult for me to arrange the money at this stage. I am still paying instalments to the developer as possession is awaited. I was indirectly told that if I don’t pay, my booking may run into trouble,” says N Parekh, who booked a flat in Panvel in 2009.
The Bill regarding 5 per cent VAT is applicable only to under-construction flats booked during the specified period. It does not apply to ‘ready possession’ flats or flats resold during the same period. VAT for the under-construction flats sold after October 31 is pegged at 1 per cent of the agreement value. The developers are still calculating the amount and will have to come up with year-wise VAT for each flat separately.
“Genuine developers will try to keep VAT to the minimum so that buyers are not burdened much. As far as refund is concerned, decent and reputed developers will neither ask for more nor hold back the amount. Buyers may be able to check the actual payment through the sales tax department,” said Gupta.