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VAT from Nov 1 on sale of homes
October, 31st 2015

With the government notifying the long overdue decision to charge value added tax (VAT) from builders for the sale of an apartment, any hopes of housing becoming cheaper appear to have faded, as the costs will be passed on to the buyer.

From November 1, builders and real estate developers will have to pay VAT on all repair and sale of apartments, homes and villas.

The proposal was cleared on October 26, making it mandatory for developers to pay the tax in a lump sum based on fixed slabs once the sale agreement has been signed.

Builders feel the move will impact the recovery in the real estate sector which is already struggling to pick up in the state. Real estate developers are therefore likely to meet the commissioner for commercial taxes next week to clarify certain "ambiguous" aspects of the notification.

"In today's market this VAT will have an impact. It is the end-user who will have to pay," a builder told TOI.

Agreements for carrying out the work of building, construction, manufacture, processing, fabrication, erection, installation, fitting, improvement, modification, repair or commissioning of any movable or immovable property will also come under the ambit of this notification, the state government has stated.

"This (VAT) was promised by then chief minister (present defence minister) Manohar Parrikar. It was left hanging for so long, so we finally requested the government to pass it rather than leave us hanging," said CREDAI president Jaganath 'Desh' Prabhudesai.

Builders, real estate developers and all parties that are liable under the amended definition of sale are required to get registered by November 30, failing which the government will impose penalties.

If the aim of the government is to restrict large-scale construction of apartments/villas that would affect the environment, it should then impose an incremental VAT on high-value housing rather than all constructions. The poor always find it difficult to buy a home. The government could attempt to earn revenue from houses priced above Rs 1 crore. The proposed VAT structure also leaves a loophole for the builder and the buyer to connive with the tax implementers to keep the cost of the new home to up to Rs 20 lakh, where the VAT is nil.

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