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CM promises relook into home sales VAT


Recently, at a seminar ‘Housing for All’ organised by the Maharashtra Chamber of Housing Industry (MCHI) and Confederation of Real Estate Developers’ Associations of India (Credai), the chief minister Vilasrao Deshmukh made a statement. He assured the gathering that he would seriously reconsider the decision to levy value added tax (VAT) of 5% on sale of flats.

“I will speak to the finance ministry and see if there’s a way out. I do admit that VAT should not be levied on the sale of flats as it is the dream of every citizen to own a shelter of his own,” said Deshmukh.

This was met with approval by all present most of whom have been repeatedly asking the government to intervene to alleviate the real estate sector’s problems.

The sales tax department’s proposal to levy VAT on sale of new flats follows the Supreme Court’s order on a dispute involving Raheja Constructions and the Karnataka government.

The proposal is applicable on under-construction projects or where occupation certificate had not been issued after 2006.

Already reeling under dipping sales, developers are asking buyers to give an undertaking of shelling out the additional sum before taking possession of their flats. The developers have made this clause a part of the agreements.

A sales tax officials said the VAT amount is not as huge as claimed by the developers.

“Construction has two components — land and material cost. VAT is levied on labour and material used,” said a senior official. Developers claimed that the decision amounts to double taxation as VAT is already charged on construction material like cement and paint.

However, there is a caveat. It is likely that the tax officials may increase the stamp duty to offset the losses that could be accrued from banishing VAT.

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