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Seeking
clarity on their tax liability, members of a Belapur cooperative
housing society (CHS) on Thursday shot off a letter to their developer,
demanding a detailed breakup of the 5% value added tax (VAT) levied on
the total agreement value of their flats. Lakhani’s Suncoast CHS has
also asked Lakhani Builders, the developer, to explain which payment
option under the Maharashtra Value Added Tax (MVAT) Act they have chosen
to calculate the VAT as well as the reason.
The society sent
the letter following an interaction with consumer activists and service
tax officials. The members were told their VAT liability worked out to
just a few thousands, even as many of them had already paid lakhs to the
developer, albeit in the form of bank guarantees. (See: ‘An
Illustration’, an unrelated example cited by consumer activists).
“We
have no objection to paying the tax, but we want to know the components
such as land, interest and the profit margins the developer may have
included to compute it,’’ said a resident.
The residents have
further asked the builder for the government order authorizing
developers to collect the amount from buyers in cheques issued in the
developer’s name.
Residents have alleged that VAT was collected
from those who bought flats after the building got an occupation
certificate in 2010. “I purchased a resale flat in 2011, six months
after the building got an OC. Government rules say VAT has to be
recovered from the first buyer. Why then is the developer not returning
my bank guarantee of Rs 1.75 lakh, which is 5% of my flat agreement value of Rs 35 lakh,” asked Arun Gandotra, a resident of Suncoast.
Sunny
Lakhani, director of Lakhani Builders, said the company has no problems
providing a detailed breakup of the tax computation. “If the buyer
wants to see our records on how we computed the liability, we will ask him to talk to our chartered accountants and see our returns.’’
Lakhani
said he has returned bank guarantees of 10 members who purchased flats
after the building was completed. “We did not return the money for three
and half years as the state had not clarified how VAT would
be charged. As we had taken only bank guarantees, the money remained
with the buyer, who got interest from the bank,’’ said Lakhani.
On
Suncoast, the developer said they took over the partially completed
building from another developer. “Computing the tax liability will be
tedious as many residents have booked and paid the flat value at various
stages of construction. We are getting different numbers from chartered
accountants,’’ said Lakhani.
“We plan to meet the residents
during the weekend and answer their queries. One thing is clear. We
would not be collecting the levy till we get a clarity on VAT
calculations.”
PROPERTY HASSLE HOW TO SEEK YOUR TAX DETAILS
Ask
the developer for a breakup of how the 5% VAT amount was arrived at Ask
to see the developer’s records or returns filed with the sales tax
department Use the Right to Information
(RTI) Act to find out whether a developer—who as per rules is deemed a
dealer—has registered with the sales tax department
Use RTI to access records of the VAT computed and paid by the developer against your building and flat
Consumers
can seek redressal on any VATrelated dispute with the Council for Fair
Business Practices (CFBP) and/or approach a consumer forum CFPB web site | http://www.cfbp.org Register complaints at | http://ccrc.in/ Phone nos | 22885249, 22842590
AN ILLUSTRATION
Composition Scheme | Section 42(3) of MVAT (preferred option of city builders)
VAT payable where a builder subcontracts construction of a building of 20 flats Sale price | 25L each paid by 20 flat owners
Total | 5Cr Less land value | 3Cr
Less amount paid to subcontractor | 1.5Cr
Less 30% on balance 50L owing to services such as labour, profit & architects fee | 15L
Balance liable to tax | 35 lakh
Total tax payable on goods purchased at 12.5% | 3.8L
For each flat, the tax payable at 5% of Rs 3.8 lakh | 19,444
Times View: Remove the smokescreen The
government cannot leave home buyers at the mercy of developers. Both
buyers and developers are justified in expecting much greater clarity
on the amount of value-added tax they will have to pay. The government
should release simple calculations as soon as possible that both home
buyers and developers can apply to each transaction and know the exact
payable amount. We are talking about lakhs of rupees here; no one should
lose out on money because of the smokescreen that is still there.
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