The Haryana government has announced plans to impose value added tax (VAT) on the builders, developers and promoters of real estate projects in the state, keeping in view the spur in activity of this sector. The move aimed to shore up revenues of the state could hurt the end-users or buyers of the property, to whom the tax may be passed on by the sellers.

This tax could see most of the builders falling in its ambit as it is proposed to be levied on any person or entity with a turnover of Rs 5 lakh.

Haryana excise and taxation minister Kiran Choudhry disclosed on Tuesday that they have initiated a survey to know about builders who could be the potential tax payers. "We would hold a meeting in July to decide the next course of action," she added.

In the fresh initiative, the tax would be levied only on those developers or builders who construct flats or houses on behalf of the purchasers. The builders would have two options - they can pay at the rate of 4% of the total project cost, under a scheme of excise and taxation department. Otherwise, the builder may produce bills of all inputs like cement or iron bought for the construction, for calculation of VAT to be paid. However, in the second option, VAT won't be imposed on the cost of land and labour involved in the project. Haryana has different slabs for VAT on goods. It is 5% for iron bar and 13.2% for sand.

If a builder opts for the first option then one would have to pay Rs 4 crore for a project of Rs 100 crore. The amount of the project would be calculated on the basis of turnover of the builder from selling flats or houses.

Terming the Haryana government's announcement as a negative signal, a builder said there should not be any tax on the real estate sector as it would indirectly affect the end-users. "Construction of houses is a social service as there are millions of people still homeless. Any new tax would adversely affect the construction activities in the state," said Pankaj Garg, a builder from Panchkula.

Chairman of Motia Developers Pawan Bansal said the developers would be forced to increase the rates of flats or houses after introduction of the new tax system. "It would adversely affect the already burdened real estate industry," he added.

According to Kiran Choudhry, businessmen who are involved in e-commerce would also be brought under the ambit of VAT.

She was talking to mediapersons at Chandigarh after launching an online grievance redressal portal www.haryanatax.com for traders and a toll-free service.