Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: cpt :: list of goods taxed at 4% :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4% :: VAT Audit :: empanelment :: articles on VAT and GST in India :: due date for vat payment :: form 3cd :: TDS :: ACCOUNTING STANDARDS :: VAT RATES :: ACCOUNTING STANDARD :: Central Excise rule to resale the machines to a new company :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes
 
 
VAT (Value Added Tax) »
 15% rise in collectionof VAT for Oct-Nov
 China to simplify tax scheme after switch to VAT
 Cabinet clears key proposals on VAT, regularisation of jobs
 Cases of VAT overcharging flood consumer forum
 State seeks relief from Centre
 Flat rate VAT changes for small businesses explained
 Cenvat Credit Of Additional Duties Of Customs [Cvd] On Imported Coal
 Excise Dept puts VAT refund on fast track
 Consumer fora receive 18 VAT plaints
 Appointment of Assistant VATO - F.3(14)/Fin(Rev-I)2012-13/DSVI/334
 Bio-diesel body seeks VAT relaxation

VAT reality for your new flat
December, 02nd 2013

The Supreme Court, in the case of Larsen & Toubro, recently upheld the constitutional validity of VAT levied by State governments on the sale of under-construction flats. It mentioned that the concept of “works contract” applies to agreements entered between builders and buyers for under-construction flats. The verdict has worsened the already low sentiment in the real-estate sector.

The industry (as indeed the end-consumer) should evaluate the implications for transactions.

IMPLICATIONS FOR BUILDERS

Builders will have to charge and pay VAT on sale of under-construction flats. It is likely that State governments (particularly Maharashtra and Karnataka) may approach builders to recover VAT for past years. For builders who have already deposited VAT dues (whether during regular assessment or “under protest” pending the verdict), the demand for pending dues may not possibly result in significant interest or penalty burden.

However, the builders who have not charged or deposited VAT are likely to be especially sensitive to this verdict. Several real-estate developers had taken shelter under the Special Leave Petition to avoid VAT payments until now. The VAT demand is likely to be significant for them. Their ability to pay, and the extent to which such payment might strain the industry’s working capital requirement remain to be seen.

On the other hand, certain features available under State-VAT provisions may assist the builders. One obvious relief is the possibility of claiming State-VAT input credits to reduce or offset the gross VAT liability arising from the verdict. Additionally, several State-VAT laws provide composition schemes to compute and pay VAT dues.

IMPLICATIONS FOR FLAT BUYERS

As State-VAT is an indirect tax, generally passed on to the buyer, the flat buyer would now bear an additional tax. For buyers who were already charged VAT, the judgment now assures them that it is payable. But the buyers who were not charged VAT should check whether the builder has inserted appropriate tax clauses in the under-construction agreement to recover VAT dues. Generally, builders have been prudent to insert such clauses. Thus, buyers who were not charged VAT on under-construction flats may now have to bear the additional cost (which was not considered at the time of financing the purchase through banks/ financial institutions).

IMPLICATIONS FOR HOUSING

In the recent past, State and Central Government departments have been attempting to provide affordable housing to the lower middle-class urban population, especially in high-priced locations such as Mumbai and Delhi. The Delhi Development Authority (DDA) and the Maharashtra Housing and Development Authority (MHADA) are among them. The implications of the Supreme Court verdict may likely apply to under-construction flats sold to the lower middle-class group. A dilemma may arise over whether the State governments should award concessions or exemptions to certain types of residential projects to ensure VAT is not onerously passed on to the buyers.

IMPLICATIONS FOR TAX REGIME

India is on the cusp of introducing the Goods and Services Tax (GST) to replace its indirect tax system. GST policymakers have hinted that real-estate transactions (buy-sell of residential properties) may not form a part of the initial GST framework. However, the Supreme Court verdict may enable GST to cover agreements for sale of under-construction properties. Thus, the related concerns may continue into future tax regimes as well.

As Supreme Court verdicts go, especially with regard to taxes, this judgment does have far-reaching implications. In addition to the problems related to compliance (such as impact on past VAT dues, cascading impact through interest and penalty proceedings, and so on), there may be associated indirect taxes such as service tax and stamp duties involved. Consequently, the challenges for a real-estate player in managing funds in today’s business environment are likely to compound.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - We Bring IT. Offshore software outsourcing company. We use Global Delivery Model (GDM) and believe in Follow The Sun principle

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions