Court Orders Builders to Pay 5% VAT
The Maharashtra High Court has ordered real estate builders to pay a 5% Value Added Tax (VAT) by October 31. This ruling solely binds builders to pay the tax, but they are found forcing buyers to cover the costs.
VAT Troubles Real Estate Builders
Builders Struggle with Tax Claims
Real estate builders are facing difficulties in claiming their tax provisions due to poor record-keeping and lack of transparency. Nevertheless, they are expected to pay the entire VAT amount.
Petition Dismissed by High Court
Real estate developers across Maharashtra filed a petition in the High Court, which was dismissed. The court ordered them to pay 5% VAT on all real estate transactions conducted between 2006 and 2010.
Pressure on Property Buyers
While the obligation rests on the real estate developers, they are pressuring property buyers to pay the VAT. The builders' reluctance to pay is not due to the amount being high but rather due to the lack of proper records, which prevents them from claiming tax deductions.
Hidden Agendas and Poor Record-Keeping
Builders often engage in hidden agendas, recording only partial purchase details in their account books. This practice forces them to pay the entire VAT amount without any tax exemption.
Tax Exemption Criteria
Tax exemption would be possible if all necessary data were accurately and clearly submitted. For example, a real estate developer showing a land price lower than the actual market price would only get exemption for the shown amount, not the actual amount spent.
Transparency Levels Vary
The transparency level of a real estate developer often correlates with their reputation. High-class developers maintain higher transparency, while smaller ones conceal their dealings.
Impact on Developers
According to Kishor Pate, Maharashtra CREDAI’s honorary secretary, the HC’s order to pay 5% VAT will affect developers differently. Mr. Pate runs Amit Enterprises Housing, a Maharashtra-based real estate firm.
Issues with Refundable Deposits
Refundable deposits collected from buyers under various names, such as deposit for electricity meters or water connection charges, are another issue. These deposits include legal charges, parking charges, and other development charges, often far higher than the actual rates.
Grahak Panchayat's Appeal
Grahak Panchayat has requested buyers not to pay the VAT to the builders. The Sales Tax Department is aware of these issues and includes received deposits in the VAT calculation, based on the actual amount given to the authorities.
Reluctance Reveals Gap
The developers' reluctance to pay a minimal VAT amount reveals the gap between the larger deposits received by builders and the amount they paid to the authorities. Those with clear and neat sale and purchase documents will pay only a minimal amount, while others will pay the entire 5% VAT, as the Court has not approved their demand to pay 1% VAT.