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Wednesday, October 24, 2012

Pune Flat Owners United Against VAT

Attend Flat Owners Meet to Discuss VAT
on Sunday, 28th October 2012, 6:00 pm
at Perugate Bhave School, Pune 411030:

Vivek Velankar - Sajag Nagarik Manch - at an awareness programme about paying Maharashtra Value Added Tax (MVAT) to builders before October 31 deadline
Vivek Velankar - Sajag Nagarik Manch - at an awareness programme about paying Maharashtra Value Added Tax (MVAT) to builders before October 31 deadline

View Flat Owners Meet to Discuss VAT at Perugate Bhave School, Pune 411030 in a larger map

The flat owners association, Akhil Bharatiya Grahak Panchayat, Sajag Nagarik Manch and Grahak Hitwardhini has called for flat owners meet to discuss value added tax (VAT).

In the press conference, yesterday, the organizations, once again, appealed to flat owners not to pay VAT till the builders finish their job by forming a cooperative housing society, submitting tax invoice and clearance from electricity distribution company.

VAT Fact Sheet
by Flat Owners Association and Civil Society Organizations:

First and most important;
‘Do not get panic about the last date for the payment of VAT mentioned in the letter written to you by your builder.’

The last date (e.g., 31st October 2012) for the payment of VAT mentioned in letter is for the builder and not for the purchaser.

But, be sure that in your agreement there is no mention about such date of payment of any such taxes.

Secondly, the letter written by the builder is not a legal notice (sent by any advocate); it is just a request letter.

Liability of VAT Payment:

The purchaser of a ready-possession flat is not liable to pay VAT.

Completion certificate issued by local Municipality / Gram Panchaayat office, Possession Letter issued by the Builder, any address proof of residence such as telephone bill, electricity bill, property tax, passport, ration card etc.; necessarily mentioning the first date of residence along with the date of agreement of sale will serve as the proof of ready possession.

Any other purchaser is liable to pay VAT. The builder is entitled to recover the tax from the flat purchaser. (The owner of a flat after its resale is liable to pay VAT as per agreement. But, builder cannot ask such owner for VAT payment; it is between the parties involved in such transaction.)

Calculation of VAT

There are three ways to calculate VAT.

1) Firstly, the builder is required to pay 1% VAT on the sale price mentioned in the agreement of the sale of the flat (agreement value) for the flats purchased after 1st April 2010.

Purchasing refers to the date of agreement of sale of the said flat.

2) The second option is usually referred as 5% option and this is available right from 20th June 2006 to-date.

Under this option, the builder is required to pay tax @ 5% on the sale price
mentioned in the agreement of the sale of the flat (agreement value). But, the builder is also entitled to claim partial credit of the tax that he has paid on his purchases of building materials. The flat purchaser can bargain with the builder and demand that part of the credit be passed onto the flat purchaser.

3) The third option may be called as ‘Rule 58 option’. Under this option, there is a deduction for all charges and profit relatable to supply of labour and services and also for land price as per ready reckoner in the year of agreement. It can be shown as below:

Taxable sale price = agreement value – (all charges and profit relatable to supply of labour and services (architect, advocate etc.) + land price as per ready reckoner in the year of agreement)

VAT is then calculated on the basis of this sale price as per the materials used (cement, steel, timbre, sand, bricks etc.) and the respective tax rates for such materials.

The tax burden will be the least under this option.

Further, the builder has right to choose one of these options and not the purchaser or the government.

Response to the builder’s letter

Here is a format of the letter as an answer to the builder’s letter.
One may modify it as per own details.

It is advised that purchaser should respond positively to the builder’s letter as usually, it is binding as per the agreement of the sale of the flat.

The C.A. certificate should provide the following things.

1. Gross tax payable (before adjustment for set off) and the set off claimed

2. Taxable price --- (sale price) arrived at (after applying rule 58)

The Format:
Send the letter to the builder by post and get its acknowledgement.

Your Name:
Your Address:


Builder’s name
Builder’s address (Registered Office)

Sub: Your demand letter dated ***** asking to pay VAT

Sir / Madam,

I have received your demand letter dated ***** asking to pay VAT.

As agreed in the Agreement (clause no. *****) between us for the Sale /
Purchase of Flat *****, I / we am / are ready to pay the VAT amount for the
said property payable to Govt. of Maharashtra.

In your demand letter, you have mentioned the calculated VAT amount as
*****. I hereby request you to provide me the calculation of such amount
pertaining to my flat, duly certified by the chartered accountant.

As the amount seems to be very high for a person(s) like me (us), I/we would
be able to pay the applicable amount to you within a reasonable period of one
month after getting the above mentioned details from you.

I understand that as there no mention about any date for payment of such
popped up taxes, I / we do not entitle to pay any sort of interest / penalty on the
said amount.

Request your cooperation as always.

Thanking you.


Name(s) and sign(s) of the flat owner(s)

Any Queries - Call:

Ms. Seema Bhakare 98603 68123

Ms. Veena Dixit--98196 60991

Related Stories:

1) 'Builders confusing flat owners about VAT payment'

2) We refuse to pay VAT!

3) How to Refuse to Pay VAT

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  1. So does this mean that the person who bought the property under construction need to Pay the VAT?

  2. I made agreement in Dec 2011 and had to pay VAT @ 1 % of Agreement Cost in same month. The Builder demanded the 1% VAT amount on his name. I stood by my stand that VAT needed to be paid to Govt. so why we should give cheque on His name... but all in vain.. Buildres office mentioned that they will pay collective TAX to govt. in one go after collecting from all flat owners.

  3. I made agreement on 05 Sep 2009 and have a demand letter dated 11 Sep 2009 from builder demanding balance amount and mentionining that my flat construction is complete and ready for possession. Is it enough to prove that flat was ready for possession and I am not eligible to pay VAT?
    Appreciate your comments.

    1. Yogesh, please, talk to Ms. Seema Bhakare 98603 68123 / Ms. Veena Dixit--98196 60991

  4. Hi Ravi,
    I purchased my flat in August 2007 in a fully constructed building. There were people staying in the same building where couple of flats were vacant. I purchased one of those vacant flat. So does this mean that this is a ready possession flat? Am I supposed to pay the VAT which the builder has charged me at 5%?


    1. Certainly, the construction of your flat is complete. No VAT on your flat, Shiva.

  5. Hi Ravi,

    I have purchased my flat in 2011, which was ready possession. Do I need to pay VAT on this?

    Also, builder is saying that last date is 27th Oct. After this date you will be charged five times. Is this valid? I know that date for paying tax to builder is 31st Oct. But what if I do not pay tax[if required] before it?


  6. It is the builder's responsibility to pay VAT on due date to the government. So why are flat owners getting so concerned?
    Like it is written above in the article, the builder has to complete all formalities like giving conveyance to the society, showing details of VAT Paid to the Government(calculations and VAT paid Receipts) etc before he asks society members to reimburse him.
    If society members pay in advance then the builder may not refund the excess amounts collected in case he pays less VAT than collected, so it is better the builder pays VAT first and then asks for reimbursement.

  7. Hi,

    My name is Anjallee. Panic, is the current state of mind for all flat purchasers I should stay. Jitki manse titke advices.

    So basically I need clarity on the following common questions:
    (a) In my case I entered into an agreement in May 2009. But the builder had sold the flat to the Investor who in turn sold it to me. So technically I bought a resale flat.Although in terms of user I am the first owner. Will the obligation change in such case?

    (b) If my agreement is silent on the obligation to pay VAT, can I push back?

    (c) What is the status of the petition that you had filed before the Bombay High Court for burdening the flat purchasers with vat?


  8. Dear All,
    No need to be Panic about the MVAT payment as a END User / Flat Owner to the builder....

    You can view the FAQ"s at the following link


    Also in case of difficulties you can take help of legal professionals, like advocates, Chartered Accountants for intricacy and clauses interpretation, as mentioned in your agreement, also for the correspondence of the builder/developer/their advocates with you.

    Saiprasad Bagrecha


  9. Hi Ravi, I brought a resale flat after it was completed and the builder has sent me notice to pay the VAT tax now. Am I suppose to pay it? I brought the flat in Aug 2010. Please advise

    1. Dear Pratap, First owner should pay the VAT. Not you. However, please, talk to Ms. Seema Bhakare 98603 68123 / Ms. Veena Dixit--98196 60991

  10. I purchased a ready possession flat in Jan 2012, completion date of the flat is 24, Nov 2012. Now i got a notice from builder to pay VAT amount. Am i liable to pay VAT?

  11. Hi Ravi- kindly reply on the queries from buyers who purchased the ready possession flat from builder during first quarter of 2011(in my case got got possession of flat in march last week some time in 2011) As this was a pre furnished flat and builder had to provide me tube light, modular kitchen etc, which needed some time to install after flat was registered to me around Feb 2011.
    now i got first notice from builder on ST and VAT after an year- am i really liable to pay these taxes? i am confused over i got a house where people had already started living there do i still need to bear this? or it should be builder?- please reply.

  12. Hi,
    I want to purchase a resale flat which is still under construction. The original investor has paid vat and service tax. Do I again need to pay vat and service tax as the property is still under constriction.

  13. Dear sir I purchased flat at Chakan Pune in Mar 2010. From 2012 to tll 2015 builder is sending me the demand letter for VAT payment. He is sending letter through Advocate, till date he has sent 4 to 5 letters. But I ignore till today. But today he called me asking for amount around 78000 INR(my agreement value is 11 lacs.) Pls suggest me exactly what amount shall I pay to builder?

  14. dear sir, I purchsed flat in 2009 , the agreement value is 11 lacs, from 2012 & onwards builder is sending demand letter for VAT. He is asking to pay total 78000 INR for VAT. So pls tell me exactly what amount should I pay ?