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Vat for under constr flat bangalore

Rajendra (SMTS II) (25 Points)

02 February 2014

Hi All,

I recently booked an apartment in Bangalore. Builder is charging service tax and VAT correctly.

However at the time of agreement; which is due next week foundation work is already completed. So around 15% amount from construction cost should be deducted from ST and VAT calculation (according to cost break-up and installments document provided by builder). This is in accordance with the L&T judgement of Supreme Court dated 27th Sept 2013 (Para 29 and115). I brought this to builder's notice. But he does not seem to agree with that. I even provided him with the PDF copy of the judgement and even showed the builder the same judgement; which is posted on the website of supreme court as well as Karnataka Commercial taxes website . However he still is adamant and wants to collect VAT & ST on the full construction cost.

In such case what are my options? Can I fight it legally?

Or withdrawal from the project is the only option? Even withdrawal at this juncture will cost me some money.

Please suggest.

thanks,

Rajendra

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6 Replies

MJ Krishnamurthy (ACCT(Retd)) (7197 Points)
Replied 02 February 2014

Mr Rajendra,

What you have mentioned in the query is correct and it is binding on all concerned,with respect to tax collection,assessment etc. Here the options open are :1)contacting the CT department through e-grahak section of their web site 2) going to consumers court 3)or filing a civil suit. For all these actions the stake should be considerably high.Here the builder will have a problem of accounting showing calculation about the vat liability.Reduction from vat has to be given to each buyer at different percentage and it should be proved to the vat authorities.Some disputes may arise, regarding the reduction given to the flat buyers,with the authoriries.On this matter the commissioner should issue instructions to department officers and tax payers,which is not done so far.Here evaluation of work already completed when a buyer enters into agreement is a difficult process. However, some concession, keeping the govt on the gaining side,can be given.In your case 10% benifit can be safely given. Suppose a building construction is nearing completion,75% reduction can be offered. This SC order has also become a loophole for builders to claim some tax reduction in the returns and not pass on the same to their customers.From the records of a builder it is very difficult to establish the actual progress done in the construction work,because it will be showing only items like,purchases,receipts,expenses on various activities.etc.So,a builder can pose many practical difficulties........mjk

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Rajendra (SMTS II) (25 Points)
Replied 03 February 2014

Thanks Mr. Krishnamurthy, for your advice in this regard. Let me talk to builder about this.

Also, your "giving back to society" thoughts are truly inspirational. Keep up the good work.

Regards,

Rajendra

Kalpana (Scientist-D) (21 Points)
Replied 30 June 2014

Sir,

Kindly go through the attached file and suggest me with regard to VAT and service tax. 75% of the construction has been completed. He is calculating VAT for (Basic value + Car parking value + electrical,water.sewage & amenites values) x 8.6%. Kindly inform the percentage of VAT and ST. Whether car parking + electrical, water,sewage & amenities has to be included for VAT & ST calculation? Please reply.

With regards

Kalpana

Attached File : 1307224 1332615 2 bhk 115 pearl park.xlsx downloaded: 672 times

chethan kumar s (Asst. Manager) (21 Points)
Replied 19 May 2015

Hi,

I am from Mana Builders Pvt.Ltd, based in Bangalore.
1) My ques is what is exact percentage of VAT for under construction project. In Bangalore different builders charging different VAT percentages, like 5.5%, 4%, 7%, 9.5% &14.5% on 70% of total cost.
in both scenarios (A) for Joint Development (B) builder owned property.
2) VAT calculated on only Total basic cost or on Grand total cost including clubhouse charges, car parking, Bescom & BWSSB charges, maintenance, & corpus fund.
3) Service Tax calculated on only Total basic cost or on Grand total cost including clubhouse charges, car parking, Bescom & BWSSB charges, maintenance, & corpus fund.

Please give clarification on above mentioned points with any Govt approved sections numbers or any weblinks which are from Govt authorities. Because every builder showing their own calculation which looks correct. so particularly we need your answers with Govt approved letters or links or copies. That would help buyers for making right decision.

Thanks,
Chethan

MJ Krishnamurthy (ACCT(Retd)) (7197 Points)
Replied 21 May 2015

Mr Chetan Kumar, Please note the following points as answer to your queries : 1) The amount charged by a builder includes several expenses such as ,a) land cost,b) material consumed for construction,c) labour and service expenses,d) collection of deposits,taxes,e) charge for common amenities etc. 2) VAT is payable on cost of material + profit,involved in the construction of an apartment.To arrive at this value one has to deduct items of a),c),d) from the total amount charged to flat buyers. On such material value 14.5% VAT is payable.Some times dealers claim 30% as labour service charges,then 70% of the amount arrived after reducing the above items(a,c,d,)is to be taken as material cost+ profit. 3) ST is payable on actual expenses made on labour and services.To avoid accounting controversies many dealers opt for 40% of total construction cost(total -a) and d)) @ 12.36%(now revised to 14%). 4) Here several problems arise while explaining to each flat buyer the actual liability of taxes.Hence they are quoting a general overall rate as 7.5%,8.8%,9% etc. inclusive both VAT and ST,depending on the deductions to be done out of the total amount. These are not correct rates,but they may be collecting correct amounts.So,each case has to be verified taking all figures into account.....mjk

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MJ Krishnamurthy (ACCT(Retd)) (7197 Points)
Replied 21 May 2015

Mrs Kalpana,

I am sorry I did,nt notice your query in web site. I read your query. Here the information is incomplete,because the land cost is not given. Land cost is not taxable for both VAT and ST.If you have all these deatails pl send message again.Even you can send e-mail to mjkrishnamurthy @ gmail.com...mjk

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