In Maharashtra House Buyers to Maximum 2.5% : How do VAT Calculate?

While house buyers in Maharashtra are confused over the payment of VAT (value added tax) on property purchased by them between 2006 and 2010, legal experts say, the recent state government circular on the issue provides marginal relief to them.

According to property, consumer lawyers & consultants, tax out go for house buyers should not be more than 2.5% of their agreement value & they should not bow to builder's demand of  5%.

Mumbai based property lawyer Mr. Vinod Sampat said, "Effective tax out go for home buyers should be up to a maximum of 2.5% per cent of the entire amount mentioned in the purchase agreement. VAT is applicable on the agreement value after land &  construction cost are deducted from it"

VAT is applicable at the rate of 5% on the agreement value for those who purchased property between 2006  and June 2010. For those who purchased property after June 2010, VAT will be applicable at 1% of their agreement value & there is no confusion over this.

How do VAT Calculate?

As per a recent circular by Maharashtra state government, the cost of construction & value of land have to be deducted from amount mentioned in the agreement, and VAT will be applicable on the remaining sum.

This is for those who have to pay 5% VAT. The state government has suggested 3 methods for calculating VAT in the circular, which leads to nearly 50% reduction in the amount on which VAT is applicable.

Another Mumbai based consumer lawyer Mr. Anand Patwardhan said, ''The buyers should know various aspects before paying VAT. Te builder or promoter will have to give them at least a months notice & should not pressurise them to pay up in next 15 days. Also, builders or developer can collect money from their clients only if such a clause is mentioned in their agreement."

October 31 is the last day for developers to pay & they will have to give property buyers at least a months notice. If any builder fails to pay by October end, he can not transfer the penalty on consumer for that

Mr. Jehangir Gai, a Mumbai based consumer activist said, "If your agreement does not mention (that future costs will have to be born by you), then in that case it is only your builder who has to pay this VAT. After several deductions, the real VAT arrives at 1.8% to 2% and not 5%. Home buyer must ensure the developer is choosing a cost effective option to pay VAT. As a consumer, you can demand for the cost sheet from your developer where he has calculated the VAT for your flat. One must also check your developer / builder has registered at the sales tax office, in order to ensure that the money you shell out for VAT payment is made appropriately"

Mr. Anand Patwardhan also gives a remedy to clear confusion over how to calculate value of agreement after various deductions and says buyers should ask the builder for the tax registration certificate.

As the agreements for sale of flats have one composite value of the transaction, there is no price mentioned separately for land, services & goods, the value of goods involved has to be determined in accordance with the provisions of rule 58 of Maharashtra VAT rules.

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