Flat owners advised caution over VAT payment to builders
Flat owners in Pune were asked to abstain from hurriedly paying Value Added Tax (VAT) to their builders by citizens’s groups and consumer forums like Grahak Hitvardhini, Grahak Panchayat and Sajag Nagrik Manc. The appeal came following the Supreme Court’s decision which stated that flats sold after 1st July 2006 will be liable for payment of the tax, unless the building was issued an Occupancy Certificate before the sale agreement.
Supreme Court verdict
Property prices across the country are likely to experience a rise, post judgment of the Supreme Court to levy VAT in addition to stamp duty. Market analysts and real estate consultants informed that the decision is very likely to create uncertainties and increase litigation as in some agreements it might not be clear who needs to pay the VAT.
Managing Director of Jones Lang LaSalle India said that the move to levy VAT, if followed by all states, would prove prospective. Though the decision may help the state governments to improve their revenue, it is considered to adversely affect the real estate sector. Property prices may increase, depending on the location and sales. Recovering money from customers to whom the flats have already been handed over, would prove extremely difficult for the developers.
Value Added Tax (VAT)
The State VAT system was introduced in India in 2005 and is one of the most important reform measures made at the State level. The State VAT system, which is ‘tax on sale or purchase of goods within a State’, replaced the prevailing system of Sales Tax.
VAT differs from one state to another and hence is controlled by the State government. The Central government acts as a facilitator for its successful implementation. It provides package for payment of compensation to States for any revenue loss on account of introduction of VAT. Financial support under Mission Mode Project (MMP) is also being provided to States/UTs by the Central government, in order to enable them to take up computerization of their Commercial Tax Departments.
The Revenue Department of the Central Government is also funding 50% of the cost involved for the implementation of Tax Information Exchange System (TINXSYS), which is a project to facilitate effective tracking of inter-State transactions.
Important things to note before paying VAT
The citizen’s groups and consumer forums mentioned a number of points to be noted by the flat owners before paying VAT to their builders. They informed that the builders might pressurize the buyers and interpret the decision to their benefit. Such a move should be tackled carefully and flat-buyers should not rush to pay the builders.
It should be ensured that all the terms and conditions mentioned in the sales agreement is fulfilled and met to satisfaction of the buyer. If not, the VAT should be paid only after the same is fulfilled.
Buyers should study the complete details of the builder, like his registration contract norms and about the projects previously completed by him, before making a decision to pay VAT.
Moreover, an exact calculation of VAT should be demanded from the flat builders, based on their personal contract, unless which the payment should not be made.
