VAT to give home owners a new load Home owners were confused and concerned about the High Court decision regarding the levy of value added tax on under-construction property but the recent Supreme Court order and a new formula by the state government's sales tax department have thankfully provided some breathing space and reduced concern considerably

VAT to give home owners a new load

Home owners were confused and concerned about the High Court decision regarding the levy of value added tax on under-construction property but the recent Supreme Court order and a new formula by the state government's sales tax department have thankfully provided some breathing space and reduced concern considerably

They say the two biggest decisions in life are finding a house and a spouse, though not necessarily in that order. The parallels are many. For starters, it takes a considerable amount of time to find the right one. As time passes and efforts rise exponentially, the search becomes increasingly difficult. In fact, some people spend an entire lifetime without being able to find the right one. Difficult decisions The parallels just keep on increasing. There is a considerable amount of faith required in both situations, often on the basis of just a few informal meetings. There is always a fear of being misled about the history. Pedigree and stability are also aspects that require consideration. Above all, there is a constant concern that someone will change the rules of the transaction either midway or even after its conclusion. Unexpected blow Have you ever heard of a marriage where after several vague initial hints, dowry demands are specified years after the ceremony takes place? In that case, you can very well relate to the flat buyers who were being asked to pay value added tax (VAT) at a rate of five per cent following a High Court judgement earlier this month. Transparency sought The issue was not so much of whether VAT is justified or not, as it was about having a lack of clarity on the laws relating to home purchases. After all, shelter is supposed to be one of the three essentials of life and if the norms governing that cannot be made clear and transparent, how can the government expect citizens to risk their life savings on the transaction? Slight relief While home owners were confused and concerned about the High Court decision regarding the levy of value added tax on under-construction property, the recent Supreme Court order has thankfully provided some breathing space. Silver lining The silver lining to the cloud was a new formula given by the state government's sales tax department, whereby instead of the earlier 5% VAT, developers have now decided to charge buyers, who bought flats between 2006 and 2010, a minimum of 0.5% and a maximum of 2% VAT. The amount will vary based on location and developer. Complex formula The government has given options as per the Maharashtra Value Added Tax, 2005, rule 58 and 42 (3). The VAT a buyer will have to pay will depend on the credit points the developer earns on his expenses and the taxes the developer has paid on construction cost, sale and agreement value, the value of the land, labour, planning, designing and other things. Concerns remain While this has obviously reduced concern levels among those who had purchased a home during the phase between 2006 and 2010, the worry lines are still visible on most brows. Again, the question being asked by flat buyers is why does the government not ensure greater transparency on such issues? Why is it that a website with housing-specific guidelines and updates cannot be created and updated on a daily basis? Why can't a citizen simply get the necessary information and its implications in an easily accessible manner? How can an average citizen be expected to understand whether an order passed by the court will or will not affect him? Panic reaction Last week, following the High Court order, there was sheer panic among those who had bought a home during 2006-1010. Elaborating on the confusion created on the issue, Subhankar Mitra, head - Strategic Consulting (West) Jones Lang LaSalle India, had drawn attention to the fact that there had been a prolonged flip-flop in progress with regards to the VAT issue, and the matter was sub judice for quite a while. In some cases, developers have protected their customers from possible VAT-induced price escalations by specific clauses in the agreements, but such incidences are exceptions rather than the rule, he opined. Ambiguity issues Arvind Nandan, MRICS, executive director - Consulting Services, India, Cushman & Wakefield, had pointed out that VAT on realty is a highly controversial topic and there is lot of ambiguity due to various issues involved. According to him, high input costs and interest rates along with inflation have already resulted in high capital values in cities like Mumbai and Pune. Despite the high unsold inventory in Mumbai, developers have not decreased their prices. Faced with liquidity issues, developers who had not collected the VAT from their customers before, and/ or those that did not specifically state this liability in their sale agreements will not be able to bear this additional burden and will definitely seek to pass them on to their customers. Resolution required Customers who were not aware of this liability have been caught unawares and in many cases will find it difficult to manage the burden of additional payment. Hence, with there being a large number of affected parties, both the government and developers should work together to find an acceptable resolution to this problem, Arvind felt. Citizens confused As of now, even with some degree of clarity available, the citizens are still awaiting a formal announcement from the authorities, stating precisely the amount that they would be asked to bear. A percentage range between 0.5 and 2 again leaves scope for fly-by-night operators to take advantage of naive customers. While reputed builders would obviously not indulge in such practices, there would still be some elements within the industry who may try to leverage the absence of specific guidelines for personal profit. Therefore, the sooner the authorities make a comprehensive statement on the specific implications for home buyers from the year 2006 to 2010 duration, the better it will be for all concerned, is the consensus among them. After all, the one thing you can't put a price tag on is peace of mind!