In a move that would impact all real estate transactions across the state, the Maharashtra government has issued a notification to levy Value Added Tax (VAT) based on staggered payments received from homebuyers. With this, buyers making payments before June end for their under-construction properties will be charged 1% VAT, while payments after that will attract 6% State GST as part of GST regime.

Currently, property transactions attract VAT at 1% of the transaction value payable at the time of registration of the agreement. However, with the amendment in the Maharashtra VAT Act, the buyer will have to pay the tax at the time of making staggered payments to the developer.

The treatment for payment of VAT is now aligned with the service tax, which is also charged based on milestone payments. With these changes, a homebuyer making payments up to June 30 will need to pay tax of 5.5%, including 1% VAT and 4.5% service tax. The same homebuyer will have to pay 12% Goods and Services Tax, including 6% Central GST and 6% State GST for payments made from July 1given the GST implementation.

Effectively, homebuyers making payments before June 30 will be paying 1% VAT, while any payment after that will attract 6% SGST. “The recent amendment by the Maharashtra government is a welcome move by which the buyers are getting the benefit of VAT payment in a staggered manner instead of paying upfront at the time of registration.

However, this positive move will turn out to be negative keeping in mind the advent of GST from July 1 because all payments after GST implementation will attract SGST at 6% as against VAT of 1%,” said Rohit Jain, senior partner and Harsh Shah, partner at legal firm Economic Laws Practice. Jain feels that homebuyers may be better off making payments before July 1, especially for housing projects that are nearing completion in the next 3-6 months.

Property buyers will benefit if they avail of the window until June end to make remaining payment for their ongoing deals. However, they will have to bear the burden of additional tax levy if the payments are made after July 1.