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VAT (value added tax) is a form of consumption tax. In a buyer’s perspective; VAT is the tax on the purchase price and for a seller; VAT is the tax only on the value added to a product, material, from an accounting point of view, by this stage of its manufacture and distribution.
The 2011 budget announced by the central and state government has implied VAT on the sale of immovable property in Maharashtra in order to enhance the revenue and to overcome various judicial pronouncements. Property buyers in Maharashtra will now have to pay more VAT as more service charges are levied on the construction of flats and other properties. This move by the Maharashtra government has affected the property buyers largely.
People who have bought flats between the year 2006 and 2010 should pay 5 per cent VAT. Also the Maharashtra sales tax department issued a circular to all the developers stating that a certain amount of VAT should be levied on properties like flats, bungalows and shops.
This latest VAT rule is a new burden to property buyers in Maharashtra as the government intends to collect around Rs 1,000 crore for this four-year period. This is predicted to affect the public as the 5 per cent VAT and the interest rate will further affect the common man.
It is said that each buyer will have to pay 5 per cent additional tax along with an interest of 15 per cent annually and a penal interest of 25 per cent which is levied by the state government. The property buyers are already under the pressure of 3.9 per cent service tax which has been implied by the central government. Properties worth Rs 1 crore will attract a stamp duty of about 6 lakh followed by the VAT of 5 per cent which comes up to Rs. 11 lakh.