Haryana’s Government Unsolved VAT Puzzle

Amit Gupta, a young professional from Gurgaon is one harassed home buyer and all his problems revolve around 3 simple letters – VAT or (Value-Added Tax). Thousands of home buyers across Haryana are sailing on the same boat, with the spat over payment of VAT becoming a matter of concern for home buyers and developers alike.

“We have already deposited cheques towards VAT. Yet we have again received a new demand saying that we have to deposit 1% more in the name of the assessing authority and issue 3% of the property value in the name of our developer. We are asked to deposit the undated cheques. Why can’t the Haryana government come out with a clear policy on VAT for home buyers? This is pure harassment”.

The confusion over VAT started in 2013, when the Haryana government’s tax department (then under Congress rule), issued an internal memo on the matter. This was followed by two more circulars, none of which managed to come up with a clear formula to calculate VAT. The present BJP regime has done no better. Successive notifications have gone back and forth on the method of valuation of VAT, all of which have failed to provide any clarity, leaving the realty market dazed and confused.

No Clear Formula, Yet Buyers Forced To Pay Up

The Haryana government had come out with a ‘Composition Scheme’ in August 2014. It prescribed a 1% VAT on the total contract value effective from 1st of April 2014 to match the 1% blanket rate of states like Maharashtra & Delhi. However, developers rejected this scheme as it barred them from collecting this tax from buyers. It also imposed an additional tax on developers if goods were bought from outside Haryana.

With no clear method to compute the payable value of the tax, developers are charging anywhere from 4.25% to 5.25 % of an apartment’s value to home buyers. However, developers claim they are depositing funds in an escrow account as fixed deposits with a lien on it, so that they can adjust the required amount and refund it once the government clarifies how VAT should be calculated.

“We are following the law in its letter and spirit. Yes, the VAT amount claimed by every developer is not the same but you cannot blame us for that. We will refund anything in case there is any outstanding, that is our guarantee.” says Sumit Chatterjee, COO of Raheja Developers.

Home Buyers Worry About VAT Collection

The confusion over VAT charges and calculations has only added to the confusion with many buyers worried that developers are siphoning off the amount collected, using it for other purposes. However experts say that there are clear-cut laws to govern this.

“There might be some fears that whatever home buyer is paying to the developer is actually reaching the tax authorities or not. That is the department’s prerogative to look into. There are clear cut laws that people collecting any VAT have to submit it to the Government. There is no ambiguity in that.” advises indirect taxation expert, Ankit Gulgulia Jain

So what options do homebuyers have? Will they have to continue to pay VAT even though the methodologies aren’t clear? Unfortunately, experts say they will have to pay up.

“Normally the term ‘indirect taxes’ mentioned in the builder-buyer agreement helps the developer hedge all his risks under the present tax regime and any future tax demand that may arise. So the buyer in most cases is liable to pay the VAT charges even if it is not explicitly mentioned in the agreement.” says tax expert Kapil Sharma, joint partner of law firm Lakshmikumaran and Sridharan.

The absence of any clarity to compute the VAT charges is certain to adversely affect the realty market of Haryana. It is crucial that the government take this matter up immediately if it wants to revive buyer sentiment in the region.

Reporter: Sukriti, Sub-Editor, NDTV


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