Property Developers will be paying an added tax on their premises for construction materials, over and above the money they have been paying to the builder to hold the property, says Supreme Court.

The minimum VAT on construction material is at 4 per cent. However, the rate may increase or decrease from state to state. The verdict has already been followed by Maharashtra in a circular issued on Friday 7, 2007.

All the construction material and the values of construction in pre-launch projects will be liable to VAT. It also includes the contracts that head construction – with retrospective effect from June 20, 2006. This has created a strange situation for real estate companies, as they fear initiation of chain reaction in other states, in a bid to add to revenue collections.

The circular follows a Supreme Court bench maintaining its verdict in litigation between the K.Rahejas Development Corporation versus Government of Karnataka. The Rahejas has entered into an agreement with Karnataka to take up construction of residential and commercial in the state. The issue whether construction work by Rahejas will be made liable to tax deductions or not is still to take up by the Supreme Court.

The Maharashtra circular supports Supreme Court’s verdict that pre launches must fall under the category of work contract. An excerpt from the circular says: “….any agreement for carrying out, either for cash or for deferred payment or for any other valuable consideration, the building and construction of any moveable or immovable property”, which asks the builders to pay work contract tax if they sell houses before completion of construction.

Till now, the builders were paying VAT on the actual cost of the construction by the contractor.  According to the new rules released by Supreme Court, they will now require to pay tax on the construction material as on the last sale price to the buyer. And, a little portion of the builder’s profit will be added back to the value of the material. Authorities will be contributing more to the cost of construction.

Source -Indian Realty News Visit Bangalore Properties

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