Recently many of my clients who have purchased flats between 2006 and 2012 have received notices from builders to pay VAT tax running into Lakhs. There is so much confusion on calculation of the VAT tax that many developers charge the maximum possible and buyers are not even aware how much they should pay.
If the flat is 1000sq ft and the agreement value is Rs. 1crore then 5% VAT comes to Rs. 5 Lakhs many developers charge this amount but this is wrong. VAT is calculated only on the CONSTRUCTION COST of the property OR the agreement value of the property and the LOWEST of the two should be considered.
so for above example the construction cost in Mumbai is between 1000sq.ft to 1500sq.ft then even if we take highest value of Rs1500 X 1000 sq.ft = 15,00,000. and 5% of this is Rs.75,000 only.
So rather then paying Rs.5 Lakh your VAT liability is only Rs. 75,000.
which is a huge difference if your Developer is charging more then go and explain him how to calculate VAT TAX.
Reference : DNA page1 on 3/09/2012