MVAT on sale of flats in Maharashtra

MVAT on sale of flats in Maharashtra from June 20,2006 to 31st March 2010

VAT on flat sale in Maharashtra

VAT on sale of flats in Maharashtra is applicable since June 20,2006,when the state government added immovable properties to the Works Contract Act (later merged into VAT) of 1989.Since then the state has been charging flat buyers 5% VAT besides the stamp duty.



This amendment was brought in 2006 based on a Supreme Court judgment in the Raheja Builders Vs Karnataka government case of 2005.
Chandrashekhar Soman,who heads a consumer body based in Panvel,explained with the help of the following hypothetical case why the VAT charged in Maharashtra is unethical as compared to the Karnataka governments VAT.



Consider that a builder sells a flat in Bangalore for Rs 1 crore.For this two documents are prepared: One is a construction contract agreement on Rs 60 lakh on a court fee stamp paper of Rs 200.The other is of Rs 40 lakh on undivided share of land on which 4.8% stamp duty is charged (Rs 1.92 lakh).
If a VAT of 4% is charged on the construction contract (as per SC verdict of May 5,2005) the amount comes to Rs 2.40 lakh.So,the builder (who collects it from the flat buyer) has to pay Rs 4.32 lakh as the total tax (including VAT and stamp duty ) on the sale of a flat worth Rs 1 crore.Say if the property is worth Rs 50 lakh,the tax comes to Rs 2.16 lakh.


In contrast,a property worth Rs 1 crore in Maharashtra will attract a stamp duty (including zilla parishad tax,where applicable ) of Rs 6 lakh.


n addition,the government is asking for VAT of 5% (for properties sold between June 20,2006 and March 2010),which takes the tax amount to Rs 11 lakh (Rs 6 lakh stamp duty plus Rs 5 lakh VAT).For a flat worth Rs 50 lakh,it will be approximately Rs 5.5 lakh.
Soman said,A tax burden of Rs 5.5 lakh is too heavy for any home buyer.It is like the Jizya tax imposed by the Sultan of Delhi in the 14th century,exorbitant and unreasonable. 
Soman demanded that the state government scrap the 2006 amendment to the Works Contract of 1989 so that a just tax system can be implemented.