By Vipin Agnihotri
Even as the Indian government talks of affordable housing, they have come up with the Value Added Tax (VAT) of five percent for sale of flats under construction. This five percent would be levied on the sale price of the flat. In my opinion, the Value Added Tax on sale of under construction units would hurt investors and homebuyers.
It is worthwhile pointing that with this move the poor buyer has to pay a stamp duty of 5 percent. In addition, he will also have to cough up 5 percent more as VAT if he purchases a flat during the construction stage. In other word, he would thus end up paying double taxes on a single purchase transaction.
“The move is a big blow considering the fact that around 90 percent of the flats are booked during the construction stage,” pointed out Reema Sen, real estate expert. When we asked government officials in this regard they said that VAT is applicable on goods involved in construction such as cement, steel and so on.
Most of the housing industry experts feel that the decision to levy 5 percent VAT on property under construction is illogical and perverse. I agree with them because property is an immovable commodity and VAT cannot be charged on it. Generally speaking, it is a burden on the buyer and is a kind of double taxation.
“We expected that the government would reduce stamp duty charges for purchase of flats from 5 percent to 3 percent. Instead, the government has now decided to levy VAT of five percent on sale of flats. We are now forced to transfer the burden to flat purchasers,” pointed out Raghuvar Dayal of Raghu Properties.
There is no doubt in my mind that the 5 percent VAT will definitely have a marginal negative impact on pre-sales as investors may choose not to acquire an asset during the construction or pre-construction stage and expose themselves to a double tax exposure in the bargain.
In theory, there are chances of an MOU being executed between the flat purchaser and the builder, which need not be registered. According to experts, they may then choose to acquire the same asset, once ready for occupation, by paying only the stamp duty component on the sale agreement. This in turn will have a bearing on the liquidity of small-time developers, who normally fund the construction of their projects with the money received from pre sales.
| Suggested Reading |
|
2 comments:
Very useful article indeed.
Need more info on below.
1. Is the buyer of the property ( Flat under construction) has to pay VAT ?
2. From what date it is applicable.
3. Does the buyer has to pay VAT on a ready to move in flat.
I am Santhosh . Is VAT applicable for a new and ready to move in Flat in the state of KN, Bangalore??
Post a Comment