Sucheta Dalal :State introduces VAT on real estate
Sucheta Dalal

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State introduces VAT on real estate   

March 26, 2010

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. — Pallabika Ganguly


-- Sucheta Dalal