VAT on Property in Haryana: Must-Know Facts


If you have purchased a property in Haryana and your home is close to the stage of possession, then chances are your builder is demanding that you pay up VAT (Value Added Tax). Buyers, who have already emptied their savings into investing in the property, are feeling the pinch with this sudden demand that runs into a couple of lakhs. Their big concern is whether to trust their builder with another payment when there is already a lot of ambiguity and litigation surrounding the calculation and applicability of VAT in Haryana. Developers are safeguarding themselves by asking home buyers to submit an ad-hoc advance, provide bank guarantees, fixed deposits or post-dated cheques as a pre-condition to letting people move in. But why this confusion? Let’s try to piece out this puzzle with these must-know facts.

1. Do I need to pay VAT on my property purchase?
Yes, VAT is an Indirect Tax or a ‘Destination Based Consumption Tax’. This means the ultimate consumer has to bear the VAT payment. The Supreme Court in 2005 in the K Raheja v. State of Karnataka case ruled “any agreement entered into by the builder/promoter before the completion of construction is tantamount to a works contract and hence, liable to VAT.” This was again reaffirmed by the apex court in 2013 in the L&T v. State of Karnataka case.

2. Why the confusion around VAT in Haryana?

While various states went ahead to establish a lucid VAT regime in the years following the K Raheja judgment in 2005, it was not until 2013 that Haryana’s VAT Department released guidelines for VAT calculation. Successive notifications have gone back and forth on the method of valuation of VAT and none have seemed to work practically.

3. Haryana’s ambitious 1% Composition Scheme fails:
To match the 1% blanket rate of states like Maharashtra & Delhi, Haryana came out with a ‘Composition Scheme’ in August 2014. It prescribed a 1% VAT on the total contract value effective from 1st April 2014. However developers rejected this scheme as it barred them from collecting this tax from buyers. It also taxes them extra if goods are bought from outside Haryana. And there is no amnesty for cases before 31st of March, 2014.

4. Builders seek refuge under regular assessment:
The other formula to calculate VAT is the Deductive Method or the Regular Assessment which they notified in July this year. It says subtract 25% of the land cost and 25% of the labour cost and levy VAT on the rest of it. But again this fails because it has been enforced retrospectively from 17th May, 2010.

5. Why is Haryana VAT causing grief?
The VAT Department of Haryana is breathing down the developer’s neck, asking them to pay up huge VAT bills running as high as 20 to 30 crores, which they are passing on to buyers. But retrospective imposition and no amnesty for already delivered and registered projects means developers are dealing with an impossible task. How are developers going to collect VAT from projects which he has already exited? There is also no provision to exclude those cases where the consideration has been received after the completion certificate.

6. Should buyers trust their builder’s VAT demand?
Indirect Taxation expert and CA Ankit Gulgulia Jain says “anybody who is collecting the taxation is the assesse under VAT. And therefore comes under the jurisdiction of the VAT Department.
There might be some fears that whatever we are paying is being paid off to the Department 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.”

7. How do you ensure your VAT deposit is not misused?
So it’s clear your builder can’t evade the VAT Department’s scanner. But what if you’ve paid extra due to the formula confusion? CREDAI member and Director of Avalon Group that is developing projects in various locations of Haryana assures buyers that their VAT payments will not be absorbed right now. Only when clarity is achieved will developers’ cash out their guarantees and that too after seeking buyers’ permission.


Vasudha Sharma, Anchor & Correspondent- The Property Show

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