Facts about VAT on construction in Maharashtra

For all those who purchased flats between 2006 and 2010 and are still being harassed by builders for paying 5 % VAT.Here are the facts which I could gather after much research on this issue.Please read,understand and share it in your networks so that people are not fooled by builders.

1.VAT dues are only applicable if you bought an under construction property between June 20,2006 and March 31,2010.In other words,when you entered into sales agreement,you need to check whether the building in which you purchased the flat had already being issued a Occupation Certificate (O.C ) by local municipal body like BMC/TMC/VVMC etc.If you purchased the flat post the OC issued,your flat does not attract any VAT.So relax.

2.VAT is only applicable on construction material used and NOT ON LAND COST OR LABOUR COST .So for example,if you paid say Rs 10000/sq feet to the builder then builder should clearly provide calculation about what was land cost and what was material cost and labour cost in that rate,You paid for everything in that Rs 10000/sq feet.Hence if builder asks you for 5 % on agreement value (which many builders are asking today ),then demand this break up and then calculate the VAT only on construction (material cost ).Many builders buy material like sand from black market and they do not have receipts for the same,hence they have to pay flat rate VAT and try to recover VAT from buyer.If they have genuine receipts for everything they used for construction,the percentage of VAT charged on property value would be much less and will be nearer to 0.5 % and not 3 % or 5 %

This is a mistake of builders that they purchased material from shady dealers and don't have receipts.Buyer is not responsible to pay for builder's mistake .I will explain how this calculation works in point 3 below.

3.The 5 % VAT is applicable on construction cost as per Govt notification for the old deals done between above mentioned dates.So taking above example,if the agreement value is Rs 10000/sq.feet,and if the break up is Rs 4000/sq feet as land purchase cost (FSI ) + Rs 3000/sq feet as material cost +Rs 1500 per sq feet as labour and other services cost + Say Rs 1500/sq feet as profit margin for builder,then the VAT is applicable only 5 % on Rs 3000/sq feet component of this breakup.Whereas today builders are sending notices to all flat owners to pay 5 % on Rs 10000 /sq feet purchase cost !!!!Don't fall in the trap.

4.Pay VAT as per above calculation only if your agreement clearly mentions VAT component to be paid by purchaser.Do not fall for some vague clause in agreement which states that any future charge to be paid by purchaser etc.These standard clauses are to scare you as middle class buyer who is afraid to fight in court and builders take advantage of this mentality !

5.VAT is a tax which can be paid only by registered vendors with sales tax and it is a form of indirect tax.So,in a sense you as an individual are not liable to pay the tax..in fact you can not pay tax as you do not have VAT registration !Builder is a vendor and payment of VAT is his responsibility.So Oct 31st 2012 deadline was for them to pay this tax and Mumbai High Court clearly stated in their order that builders will pay this !So don't be too much afraid that you missed Oct 31st deadline !

6.Lastly when in doubt,and if being harassed by builders,please stand united with your housing society members and send written response to builder notices as collective body.Consult your chartered accountant and lawyer as they are your friends !

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