Track2Realty: Mumbai-based developers will have to finally pay 5 per cent Value Added Tax (VAT) to the Maharashtra Government. The Bombay High Court has dismissed a petition filed by MCHI-CREDAI that challenged the levy.
The builders will have to pay the VAT for under-construction properties that were sold between 2006 to 2010 period. A division bench comprising Justice D. Y. Chandrachud and Justice R. G. Ketkar dismissed the petition filed by MCHI-CREDAI describing it as ‘without merit’. The court also added that deadline of payment of VAT stands on October 31.
MCHI–CREDAI had filed a petition challenging the levy of VAT and computation of rate of taxation. The final date for payment of VAT was August 31. However, the deadline was extended by the Supreme Court to October 31.
In the case, Maharashtra State Government issued a circular and asked builders to pay five per cent VAT for houses sold during 2006-10. However, another circular issued by the State Government directed a levy of 1 per cent VAT on residential properties sold post 2010 to which the industry body had objected.
Reacting to the judgement, MCHI-CREDAI Secretary Boman Irani said that the tax burden is likely to be borne by buyers. “It would be an additional burden for buyers who anyway have to pay 11 per cent as their last mile to buy a house. We would also be appealing in whatever way possible for a rationalised rate of one per cent,” he added.
Meanwhile, Om Ahuja, CEO (Residential Services), Jones Lang LaSalle India, said this would impact the cash flow for developers, a majority of whom are already dependent on funding for their business.
“We also foresee a drop in secondary sales of the houses bought during 2006-10 as the buyers would insist on an indemnity bond covering the tax cost whereas the seller would be in state of confusion which could impact sales. This could indirectly lead to an improvement of sale in the primary market,” Ahuja added.
He however said that it will not impact the new sales as the there is no ambiguity regarding the VAT payment for houses bought after 2010.
