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VAT on flats may be less than what owners fear
September, 05th 2012

Here's some good news for flat owners worried how much Value-added tax (VAT) will they have to pay.

The quantum of Maharashtra VAT on flats and real estate sold in the state between June 20, 2006 and March 31, 2010 may be much less than 5%, depending up on the method of calculation a developer chooses to adopt.

For example, for a flat with an agreement value of Rs 30 lakh, the VAT could be Rs 24,500 at the lowest and Rs 1,15,800 at the highest.

Soon after the state government's communication, there was a general impression that purchasers will have to shell out a high 5% of the value of their deals as VAT. While that is a possibility, the Maharashtra Department of Sales Tax has said that there are three options available with developers to calculate the MVAT.

A senior functionary in the Sales Tax office told TOI that under rule 58 of the Act a developer can deduct the price of land as well as expenses on labour and further deduct the VAT he has paid on the materials before arriving at his tax liability under MVAT. Alternatively, the developer can choose the standard deduction method.

There is a third option based on composition at the rate of 5% of the agreement value and deducting from it the tax already paid on purchase of materials. This method does not contemplate deduction for land value, the official said.

Thus for a flat with an agreement value of Rs 30 lakh with land cost of Rs 15 lakh and labour expenses of Rs 5 lakh, the MVAT payable would be Rs 24,500 under the first option and for the same agreement value and land cost with standard deduction of 30% for labour cost, the MVAT would be Rs 28,875. By the 5% composition method, however, the MVAT would work out to as high as Rs 1,15,800.

Real estate developer and director of Gera Developments Rohit Gera said a developer will have to exercise the choice according to his method of paying for labour and materials. He said the composition method which provides for a flat 5% gross MVAT is the least efficient one but there may be some developers who will choose it.

Gera said the extension in time which the Supreme Court has allowed has given time for developers to work out at greater detail their tax liability and select the method which is least painful for their customers. "One thing is sure, the developers will be able to recover from the customers only what they pay to the government, and there is no possibility of a developer charging anything extra under any pretext," Gera said.

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