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Sales tax notices hit real estate
June, 12th 2008
The notices issued by the sales tax department on work contract tax have sent the real estate industry into a tizzy. A representation of city builders will meet the finance secretary on Wednesday to discuss the issue.

In the light of the decision given by Supreme Court in K Raheja Development Corporation vs state of Karnataka, the sale tax department is considering the advance booking and has linked schedule payments by the purchaser of the flat as the payment under 'work contract.
Builders are contending the order on the basis that builders and developers in Rajasthan do not enter into any development agreement, thus there is no work contract involved.

If the views of sale tax department are accepted then it would mean that there would be no need to pay stamp duty by the builder while purchasing the land and similarly the transaction is for awardees, so stamp duty would also not be required on the subsequent sale, builder-cum-charted accountant Atma Ram Gupta said. He added that one transaction can not be taxed twice by the state government.

The 4% tax is proposed to be levied on the account of sale transaction of the building constructed by the builders.

The department, in its notices, has deducted 30% of amount as labour charges. 40% of the rest amount is considered as the steel sold to the customer, which attracts 4% of sale tax. The department has calculated tax at the rate of 12%, the highest rate of VAT as the transaction of a flat is not specified on sale tax act, thus attract the highest rate applicable.
Chairperson of the Rajasthan Builders and Promoter Association, Gopal Gupta, said that the move of sale tax department is not justified. Principal secretary (finance) Subash Chandra Garg said that he would look into the matter.

Tax break-up

30% of total is labour charges
4% tax on 40% of remaining amount for sale of steel
12% VAT on rest amount
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