Builders, consumer groups in row over VAT

Even as builders have once again issued notices to flat owners asking them to pay the Value Added Tax (VAT) before October 31 for their houses bought between 2006 and 2010, consumer groups are advising them against doing so, arguing that the October 31 deadline is for the builders to pay VAT to the government and not for the buyers.

Consumer activists also say that the flat owners willing to pay the tax should only do so after getting a VAT invoice from the builder to avoid paying more than the required amount.
As per a recent Supreme Court order, the Maharashtra sales tax department has directed the developers to pay the VAT for flats sold between 2006 and 2010 before October 31 to avoid levying of interest and penalty. Subsequently, most builders have sent notices to flat owners to pay VAT.
Activists allege that there is a lack of transparency in the way the developers are collecting VAT from purchasers and a lot of ambiguity in calculation of the amount. “The amount of VAT to be paid by the flat owner, if calculated rightly, cannot be greater than one per cent of the agreement cost. But the builders are asking for anything between 3.5 and 5 per cent,” says Vivek Velankar of Sajag Nagrik Manch, which held an awareness campaign among the flat buyers on this issue.
According to Velankar, not more than 25-30 per cent of people who bought flats in the given time have paid the VAT, while others have decided to wait and watch.
“We are advising the purchasers against paying VAT to the developers by October 31. It’s not mandatory on them to do so before this deadline. The deadline is for the developers to pay the VAT to the government. There are quite a few builders who have paid VAT without taking anything from their clients,” says Velankar.
He says those who wanted to pay the VAT should ask for a VAT invoice from the builder that would give the exact amount of tax each buyer was supposed to pay. The VAT is not applicable on the land purchase, labour cost and raw material for which the builder has already paid the tax.
On the other hand, office-bearers of the Confederation of Real Estate Developers’ Associations of India (CREDAI) have charged the activists with misleading people and claimed that all member developers had been directed to maintain transparency while collecting the taxable component from the purchaser.
“We are not trying to make money on a back-dated problem which has arisen due to government policy. We have asked all our members to maintain the highest degree of transparency in collecting and submission of the VAT. We have also advised the flat owners to open separate bank accounts and pay their tax through this account so that if any situation arises in future where it is proved that additional amount is collected by a certain builder, the amount can be readily refunded. If the flat owners do not pay the amount by October 31, they will have to pay the amount with additional interest and penalty,” says Satish Magar, president, CREDAI, Pune.
Source:Financial Express