• Aug
  • 10
  • 2012

FAQs on Applicability of VAT on Construction projects in Maharashtra

 FREQUENTLY ASKED QUESTIONS [FAQs] ON TAXATION OF DEVELOPERS

1. Admitting while not accepting that the State of Maharashtra can levy tax on such a transaction, will our members get the credit of input tax paid while effecting purchases of materials like cement, iron 86 steel etc. required to be used in the Construction project. The members would pay the tax under the MVAT Act as the applicable rate of 4% or 12.5% depending on the material required to be used?

Ans: Yes, they will get input tax credit, if they paid the taxes u/r 58 or u/s 42 (3).

2. In our life of industry, the practice is that an Agreement to Sell is prepared much in advance at the time when a prospective buyer book the accommodation in a building under construction and the developer concerned undertake to give possession of the accommodation so booked after obtaining completion certificate with the promised Position, we would like to know as to at what point of time the VAT under the amended law would be payable?

Ans: Taxability arises on agreement. Tax is levied as and when the installments become due and payable or are received, whichever is earlier.

3.Whether the levy of VAT on agreement for under construction flats/ shops etc. is covered with in the amended definition of Works Contract? Is there any scope for escaping this levy?

Ans: Yes. It is covered. No Scope for escapement.

4.What is the rate of tax under VAT Act applicable for agreement to sell under construction flats?Ans: Tax rates would be those which apply to the goods in which property is transferred.

5. What is the effective date from which the VAT will be applicable? -

Ans: The date of amendment i.e. 20 June, 2006.

6.The agreement to sell the flat was executed before 20.06.2006 and the building was under construction and possession is given after 20.06.2006. Whether the VAT will apply in Such case because the agreements were executed prior to 20.06.2006? If yes how the sale value will be determined for calculation of VAT? Whether the amount received prior to 20.06.2006 will be exempt from VAT? .

Ans: Yes. VAT will apply. It will be levied on value received or receivable after 20th June, 2006.

7. Many times mere advances are received and agreement is executed much later. What will be the point of liability whether at the time of receiving the advances or at the time of execution of the agreement or thereafter on possession?

Ans: Tax will be levied from the date of the agreement. The amount of advance, as and when it is adjusted towards the agreement amount, will be taxed.

8.The builders receive non-refundable deposits and other charges under the agreement such as electricity deposit, water charges, legal charges, development charges etc. Whether such receipts will also form part of sale price for VAT?

Ans: The amounts which are received as deposits will be a deduction to the extent such amounts are actually paid to other authorities.

9. In the under construction flats the amounts are received in installments. How the sale price will be determined? Whether the actual receipts will be taken as sales or the whole of the agreement value will be taken as sale at the time of execution of the agreement, even though the amount is yet to be received?

Ans: Received or receivable. Receivable means due and payable.

10.Can the VAT applicable in above cases be collected by raising a debit note or the same should be mentioned in the agreement itself? Whether VAT should be collected on each installment or at one go upon execution of the agreement?

Ans: Yes. It can be collected by raising a debit note. Specific mention in the agreement is a choice of the contracting parties. It should be collected as and when the instalment becomes due.

11.What will be the amount of set off available in such cases i.e. full set off of VAT paid on purchases or part of that?

Ans: Purchases made on or after 20th June, 2006, will be eligible for set off subject to rules.

12. Whether any interest or penalty will be attracted for non registration with sales tax authorities under VAT and no submission of VAT returns for the transactions executed for sale of flats/ shops under construction between intervening period i.e. 20.06.2006 to 07.02.2007?

Ans: Yes.

13.What will be VAT the implications where mere advances are received from buyers and agreement for sale is not executed with the buyer?

Ans: There is no tax liability.

14. If composition scheme is not opted then what is the rate of tax and how the sales price will be determined? What are the deductions permissible like labour charges, profit margin etc. In such cases how the set off will be worked out?

Ans: As per rule 58. Set off is related to purchases and not sales.

15. A Builder may construct more than one project, in such case, whether different calculation method for different project can be applied?

Ans: Yes, he may adopt different method for each project, but he is not allowed to change the method till the completion of that project.

16. What are the various options available to the developers for disclosing tax liability?

Ans: Developers can discharge their tax liability by any of the following option:-

From 20.06.2006 to 31.03.2010

1.   Composition Scheme U/s 42 (3)- Under this scheme developer has to pay 5% tax on the agreement value. Land deduction is not available. Input tax credit is available subject to the reduction of 4 per cent.
2.   Actual Expense Method U/r 58- Under rule 58, the deduction of Labour 86 service charges is available on actual basis. Land deduction is also available. Set-off will be calculated subject to the condition u/r 53 and 54.

3. Standard Deduction Method U/r 58- Under rule 58, the deduction of land cost will be allowed. Thereafter 30% standard deduction from remaining amount will be available as per proviso to sub-rule 1. Set-off will be calculated subject to the condition u/r 53 and 54.

After 01.04.2010

The developers can opt for fourth option also, under this option u/s 42 (3A), developer has to pay 1% tax on agreement value. No land deduction and input tax credit is available.

Needless to mention that, the developers will be required to make the payment of interest according to the provisions of law.


18 Responses to “FAQs on Applicability of VAT on Construction projects in Maharashtra”

  1. tcbaphna says:

    What is the present system to pay VAT and Service tax by a builder/developer and by flat buyer as on date. who is the responsible to pay to the Govt.

    Regards
    TC Baphna
    9820002896

  2. Pradeep says:

    Dear Sir
    I have booked my flat in 01.01.2010. I am eligible to pay vat as demanded by builder ? if yes how much amount % . secondly builder is demanded interest on vat payment also..is it valid ?

  3. Pravin Renukdas says:

    I have registered an agreement to sale of flat on 13/1/2014. The Completion date is 23/12/2013.Payment against flat were recieved on 30/7/2013 .Will I have to pay Vat only for payment recd. before completion or for the entire amount of flat, i.e for the payment recd. after completion also.

  4. prakash jain says:

    I have registered an agreement to sale of flat on 20/7/2008. The Completion date is 30/9/2008.Payment against flat were recieved on 20/7/2008 and 31/10/2008. Will I have to pay Vat only for payment recd. before completion or for the entire amount of flat, i.e for the payment recd. after completion also.

  5. sathish Kumar A says:

    Sir In composition (VAT) scheme whether land value is exempted in case of joint development agreement.

    Please reply

    With regards

    Sathish Kumar A

  6. Deven Bafna says:

    my developer has completed the project before 30.6.2012 and have recd an completion certificate from his architect.he has also applied for oc but has not recd till date . is he liable to collect Vat & Service tax

  7. Mathew Varghese says:

    The builder constructed our building before 20 June 2006, many buyer registered thier flats and subsequently occupied their flats before 20 th June 2006. In my case since I went to my home town
    I was able to register my flat on 27 August 2006. Am I supposed to pay Vat at 5% when most members in the same building did not have to pay. Can Vat be applied selectively for members in the same building?

  8. ashok gohel says:

    If the agreement is executed after receiving the completion certificate the VAT is not payable, but what if in case the advance is received as booking amount and this advance is adjusted against the the agreement executed after completion certificate? Is VAT @1% payable in this case?
    Thank you with Regards,
    Ashok

  9. Saurabh says:

    We received letter from our builder regarding VAT payment about 5% of aggrement cost. Builder mensioned that we need to pay that before 31st Aug 2012. If we not pay that amount can builder is able to take any legal action aggest us?

  10. ASHOK R DALVI says:

    The first booking receipts of flat is 26.06.2006 and the building was under construction and possession is given after in the month of May 2009. Whether the VAT will apply? If yes how the purchase value will be determined for calculation of VAT?

    The agreement cost is Rs. 651000/- in this case what cost will reduced from the areement value on lue of land and labour coust and the final cost for MVAT calculation? and what % . ………….. who will pay the .

    Thanks
    Ashok Dalvi
    8108337555

  11. ASHOK R DALVI says:

    The first booking receipts of flat is 26.06.2006 and the building was under construction and possession is given after 20.06.2006. Whether the VAT will apply in Such case because the agreements were executed prior to 20.06.2006? If yes how the sale value will be determined for calculation of VAT? Whether the amount received prior to 20.06.2006 will be exempt from VAT? .

    The agreement cost is Rs. 651000/- in this case what cost will reduced for land cost and labour coust and the finl cost for MVAT calculation? and wht %…..

    Thanks
    Ashok Dalvi
    8108337555

  12. S Shyam says:

    I see in one query’s answer that if the agreement is executed before June 20, 2006 and paid for in instalments, VAT will be applicable on the amounts received or receivable AFTER June 20, 2006.

    What if the agreement is executed before June 20, 2006 and the entire agreement amount is paid to the builder before June 20, 2006, and possession and OC received after June 20, 2006…. is VAT required to be paid?

  13. mangesh says:

    I have purchased flat from the builder in DEC 2006 while the building where this flat is situated had received its OC in feb 2006 itself. Do I still have to pay the VAT as per the recent rules ?

  14. Ashok Shetty says:

    Can u pls tell me that if I hve bought a flat in 2009 on resale , not from the developer do I have to pay vat,
    I had bought the ready flat,on the 6th floor the 7th floor was undr constrctn,OC was rcvd only this year

  15. Sameer says:

    We received letter from our builder regarding VAT payment about 5% of aggrement cost. Builder mensioned that we need to pay that before 31st Aug 2012. If we not pay that amount can builder is able to take any legal action aggest us?

  16. Kiyosh says:

    I think it is 5% as agreement date is before 1-4-2010.

  17. Shyam B says:

    Flat registered in Dec 2009 and possession of flat was on April 2010. What is the rate of Vat applied 5% or 1 %? Kindly clarify.

  18. Prem T. Chhatpar says:

    In my view, the MCHI judgment has merely upheld the constitutional validity of the provisions of the Act, Rule 58(1A), Comp. Scheme and Trade Circular dt. 7/2/2007 and not delivered its judgment on the facts of any particular case. In fact, when facts are not on record, the Court cannot deliver its judgment on a writ. The HC has ruled that the amendment dt. 20/6/2006 was merely clarificatory of the legislative intent – no extra powers conferred by the amendment on the Dept- nothing more nothing less. Hence, old DDQ and Tribunal decisions given on facts will hold good even after amendment.  MCHI judgment has directed Assessing authorities to ascertain facts whether a particular contract constitutes works contract or not – hence notices issued u/s 64 and 66 for ascertaining who are Dealers liable to registration are valid. Before ascertainment, Dept. wants even non -dealers to come forward, apply for registration, pay taxes not otherwise payable with the lure of Administrative relief and set off.  If later found not payable, taxes paid by reflecting the transactions as taxable in the return may be liable to forfeiture (if collected from Flat buyers) Hence, no need to apply for administrative relief – at best apply for DDQ

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