Tuesday, August 21, 2012

Taxes, Real Estate & Affordable Home!

The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing...Jean Baptist Colbert

Well looking around the scene in real estate our Govt seems not to have heard this famous quote about taxation as the feathers are not only been plucked out, ignoring the hisses but even wailing of the Goose! Especially when it comes to Real Estate Industry, it’s bleeding by now leave apart shouting while the taxation continues under different headings!

As usual many rather most will say what’s wrong, if you earn then pay! And any ways when it comes to builders they are usually reluctant to pay back even a single rupee for any cause that’s why the Govt has to pull the things away from them! Well may be true in some cases but not always. For instance take the recent news which has stormed Real Estate Industry across the State of Maharashtra ( or soon will storm) is the VAT i.e. Value Addition Tax case in which the High court has decided against the developers. And has allowed the Sales Tax Department to collect the VAT from 2010 but  to charge for the same since 2006 i.e. even on completed projects too. After all its a court decision & the matter will go surely to higher courts but till the time being it’s one more hole in the pocket for the developers & eventually for the flat buyers. As usual many rather most will say what big deal, which developer pays the same from his pocket! Well this time the case is bit different & complex as the retrospective effect for VAT collection is from 2006, many of the projects have been completed & flat holders have been given possession of their respective homes. Though this particular clash was going on since then that whether VAT is applicable on home making, the Sales Tax dept hasn’t been collecting the same till 2010 so whatever tax was due in these five years is the issue of dispute now between the Developers & the Sales Tax Dept. Though by agreement it’s mandatory to pay it by the flat holder as mostly in all flat agreements this idea has been clearly given to the flat buyer, yet now the conflict will be between the customers & the developers over paying this tax even after getting possession of their home! Not many of the flat holders will be even remembering such clause in their flat agreements leave apart paying the liability. And this may cause the developers to take a stand not to make conveyance of the such properties as if the flat holder refuses to pay  Vat then it will be breech of the contract, if there is such clause in flat sale agreement between himself & the developer. One direct impact which is unavoidable is the hike in home prices as the developers will have to recover this unexpected financial burden & if they are unable to do it from the existing flat holders then naturally other only way is get it from the new ones! I am not justifying this action just putting forward the facts what may happen.

Now with the case has been lost by Developers on high Court the Sales Tax Dept has started plucking the feathers i.e. sent notices & the dead line to pay the tax liability from 2006 has been set as 31st August!  By now there must have been many news making headlines as well articles written on the issue by tax experts so no point in going in the details as even the experts seems to be yet confused about the mode of VAT for the retrospective effect years. I am not authority to decide whether its justifiable to charge any tax retrospective as courts are there to decide but as developer by myself &a as a commoner who knows little about taxes all I expect is whatever you charge should be simple to understand. At least what I am going to pay from my pocket should be clear to me so I can arrange my finances accordingly & this is the least any tax payer can ask for! Look at the scene this is going to cause, I have to pay something which I don’t know how much it’s going to be, and whenever such situation is there we all know where it will lead at end? You may not name corruption directly but there will be many cases of trying to run away from the actual figure is a fact. Why can’t before serving the notices the concerned dept itself do a little home work & figure out exact & simple way of calculating the VAT, so there would not have been the confusion about arriving at the figure in itself!

Similar thing have kept happening may it be VAT or Service tax or even the premiums required for the plan sanctioning at governing body's level. Everyone thinks that Real Estate is like the Hen in that story which used to lay Golden eggs. But then we have never known to learn from the folk stories & like the story here in actual too we are hell bend on cutting the Hen than enjoying one egg per day forever! One will wonder with my statement but fact is ever Govt dept concerned with real estate wants their cut from the industry & in the process they are forgetting that to whom they are actually bleeding? A home is very basic need of any citizen of this country especially the urban India & already the prices are way beyond budge for most of the people. On one side the Govt is screaming to make affordable houses & making appeals to the developers for making them & on other side burdening the homes each day with new taxes. Have we thought who is getting burdened under these taxes? The developer isn’t surely going to take any of this load but to pass on the end buyer who is a common man seeking for his own home. Just take a look at the list of the taxes or money being paid to various Govt agencies in process of sanctioning a home to make it ready & then you will realize the quantum of money a common home buyer ends up in paying to the Govt for buying a home!

The journey starts right from the sanction process of a home i.e. project by the developer. Presently just in forms of various premiums like for balcony, terraces, stair case areas & development charges one has to pay nearly 150/- to 300/- per sft of FSI. Then there are labor fund charges. You have to pay for slum rehabilitation for use of slum TDR. Then there are various charges to be paid for use of road FSI ( though it’s your own road you are handing over to PMC), water development charges. All such are being collected by local governing body. After that come in revenue dept which chare for NA i.e. giving Non Agricultural permissions after the plans have been sanctioned & then City Survey Dept which charges hefty for measuring your own plot! All these charges are paid by the developer to get the project sanctioned. Then comes the registration charges & stamp duty. That is nearly 6% of agreement cost in city limits i.e. if flat agreement of 4000/- per sft the you end up paying nearly 240/- per sft to stamp dept of Govt. The story doesn’t end her then you have service tax for Central Govt which is nearly 2.5% of the agreement cost & latest entry is VAT which will be 3% approximately ( not sure as final way of charging is yet to arrived) of the agreement cost. If roughly calculated then to my opinion we will be paying nearly 600/- per sq.ft of the flat area in the form of various taxes & charges to the Govt's different Departments in the process of making a home & selling the same. Here I am not counting the time consumed in all this process & cost of the same. Needless to say this amount is being eventually recovered by the customer only! Then there is the power supply i.e. MSEB meter charges which are like icing on cake & charged separately per flat & that varies from project to project. And lastly for those who avails the home loan there is bank processing fees & registration / stamp duty for loan amount!

Here no developer is paying this from his pocket & why blame developer no manufacturer ever pays anything from his pocket is a well known but unsaid truth! Every single Rupee is charged on the end buyer of the product & a home is not exception! This is what I never understand as when the product is like home & one so dear to the heart of millions in this country why can’t there has been a single taxation concept which will make life easier for many. Nobody is against paying taxes  it’s about the way you worked out them. As the developer will know how much he has to pay for making a home so as there can be better transparency in the entire process which is missing presently. Today mostly all flat agreements carries a clause a saying whatever Govt Taxes/ Duties applicable will have to be paid by the purchaser as actual. This clause even puts the purchaser in dilemma as he never knows actually how much he is going to pay till end while buying a home. This does not only disturbs his financial planning but the entire real estate industry comes in doubt as where is the term we call Transparency? Lastly have we thought that by charging so much on every aspect of real estate how we are going to make the home affordable which is the main need of the time. As agreed it’s the taxes we pay which makes a nation able to go on but that has to be done balancing all these aspects & if there are taxes then there should be rewards also for right cause such as making homes available to real needy ones! After all what a common man can expect from the Govt is just a shelter on his head & for that he is going to pay whatever the Govt asks, question is are we going to consider his shouts of pain while doing this or going ahead to pluck the feathers ignoring the same!

Sanjay Deshpande

Sanjeevani Dev.

Envo-Power Committee, Credai, Pune

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  1. All member frds & visitors of the blog, do write me what you feel about the articles I post! As that will help me in refining my writing as well do suggest the related topics which you feel should be covered in this blog!

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