Maharashtra Government VAT ruling on property purchase - 5% VAT on agreement value + interest at 15% per annum on arrears for under construction property bought between 20-06-06 & 31-03-10

Maharashtra Government VAT ruling on property purchase - 5% VAT on agreement value + interest at 15% per annum on arrears for under construction property bought between 20-06-06 & 31-03-10


Buyers who bought under-construction flats between 20 June 2006, and 31 March 2010 in Maharashtra  are now being forced to shell out additional cash as developers attempt to pass on the burden of  Value Added Tax which they will have to pay with retrospective effect.

The Sales Tax Department has served notices on builders and developers to pay VAT from June 2006 to March 2010 after the  Bombay High court shot down real estate developers’ appeal against the tax.

Builders, in turn, have issued notices to flat buyers, asking them to pay the tax amount even though the department has clearly stated that the onus to pay the tax liability is on the developer and not the property buyer.


Even though the fight is between the government and the developers, it is the end user who is suffering as the developers are creating a perception that the buyer has to pay the tax by saying it will add burden. The builders association in Maharashtra, Credai,  has claimed that each flat buyer in Maharashtra would have to pay up-to five percent additional tax.


In India realty is not organised. Neither is it regulated by any constitutional body. Every state comes out with different rule position for a specific period and its not transparent. The clauses are so confusing thereby enabling the builders to fleece innocent customers.

FREQUENTLY ASKED QUESTIONS [FAQs] ON TAXATION OF DEVELOPERS

1. What is the effective date from which the VAT will be applicable for
sale of under constructed flat? 
Ans: The VAT is payable from the date of amendment i.e. 20 June,2006.

2. On what type of contracts the VAT is payable?
Ans: VAT is payable in respect of sale of under construction flat.

3. Whether VAT is payable on the sale of completed flat?
Ans: VAT is not payable if a completed flat is sold by the developer.

4. How is VAT calculated? Is it on under construction or ready flats?
Ans: It is on under construction flat not on ready flats.

5. Who has to pay VAT; Flat buyer or Developer?
Ans: The liability to pay VAT is on developer.

6. Who has to pay VAT if a developer has not told the buyer of VAT to be paid when he purchased flat post 2006?
Ans: The developer has to pay the VAT.

7. What is the rate of tax under VAT Act applicable for agreement to sell for under construction flats?
Ans: Tax rates would be those which apply to the goods in which property

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Realty stocks take a knock on Maharashtra VAT