Maharashtra High Court ordered the real estate builders to pay 5% VAT by 31 of Oct. This order solely binds builders to pay the tax but they are found forcing the buyers to pay the tax.

VAT Troubles Real Estate Builders

Real estate Builders remain unable to claim their tax provisions due to less transparency and poor records. The developers are still expected to pay the entire amount.

Real estate developers across Maharashtra filed a petition in the High Court. The court dismissing their petition, ordered them to pay the VAT (Value Added Tax) of 5% on all real estate transactions done between the years 2006 and 2010.

As per the HC’s order real estate developers are to pay the VAT by October 31. While the obligation rests on the real estate developers, they are found inserting pressure on the property buyers to do the same.

Real estate builders are reluctant to pay the tax not because the amount is so high. The reports show that this is due to lack of proper records at the hands of them. This provides them no chance to claim for any sort of tax deductions.

The builders often indulge in some hidden agendas. It is reported that most of the builders keep their purchase details half hidden. Only a part of the purchase will be entered in the account books. Thus the HC’s order to pay 5% VAT will force the builders to pay the entire amount without getting any tax exemption.

Tax exemption would be possible in case of submitting all necessary data is an accurate and clear way.

For instance the real estate developer who shows a land price which is lesser than the actual market price will get only the exemption for the shown amount. Whereas the actual amount he spent is not taken into consideration.

Real estate developer’s transparency level is in conformity with his reputation. This shows that the high class developers maintain higher transparency whereas the smaller ones do conceal their dealings.

According to Kishor Pate, Maharashtra CREDAI’s honorary secretary the HC’s order to pay 5 % VAT will affect the developers differently. Mr. Pate runs Amit Enterprises Housing, a Maharashtra based real estate firm.

Refundable deposits, collected from the buyers on various names like deposit for electricity meter or water connection charges, are another issue which the builders face. These refundable deposits contain legal charges, parking charges and other development charges. Often the builders charge far higher than the actual rate.

Meanwhile the Grahak Panchayat requested the buyers not to pay the VAT to the builders. The Sales Tax Department also seems aware of these cheats. About VAT the Sales Tax department says that the received deposits also will be included in VAT. The VAT will be calculated on the basis of the actual amount given to the authorities.

Why one wonders over the real estate developers remaining reluctant to pay a minimal VAT amount. This shows the bigger gap between the bigger deposits builders received and the amount they paid to the authority.

Discussion with the government officials and some real estate developers brought the fact to broad light. Actual cases say that the builders will have to pay only an amount up to 2% – 2.5 % of VAT. So those builders who have kept all the documents of sale and purchase clear and neat will have to pay only a minimal amount. Others will have to pay the entire 5% as the Court has not approved their demand of paying 1% VAT.