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1% VAT on Under-Construction Property

Tax being at the top of everyone’s head at the moment, here’s something to add to it. In fact, you can even call it a Value Added Tax at that. Yes! Maharashtra finance minister Sunil Tatkare has decreed that VAT on under-construction property will be levied at the rate of 1% of the sale price. Which means that for a property worth Rs. 30 Lakh, a tax of Rs. 30,000 will be levied payable via the builder itself.


Aimed to increase clarity and transparency on the calculation on under-construction properties with no set-offs of any kind. This tax will take effect from April 1 and is no April Fool’s joke and effectively reduces the tax burden on the buyer to 1%. While initially VAT was levied at 12% on cement, 4% steel, etc. and developers not adopting a uniform way to calculate VAT the new levy will simply the computation by fixing VAT at 1% of the flat price in the agreement of sale. However there are other levies to worry about. The 2010-11 Union budget proposed a service tax on under-construction property, which effectively adds 3.4% to costs. Besides this, there is the state government’s stamp duty and registration charges. In essence for a property worth 30 Lakh, an additional expense of approximately Rs. 3 Lakh will be necessary.


Brokers say property sales have dropped by almost 40-50% due to prices increasing by almost 20% in the past six months. The levy of 1% VAT may worsen the slowdown, it is said, but we like to look at the bright side and consider the transparency and ease of computation of the these taxes will make it easier for the buyer to make his decision and choose his dream property without hesitation and doubt.
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One Comment

  1. rediff1981
    Posted on April 19, 2010 at 9:16 pm

    ” While initially VAT was levied at 12% on cement, 4% steel, etc. and developers not adopting a uniform way to calculate VAT the new levy will simply the computation by fixing VAT at 1% of the flat price in the agreement of sale.”

    is 1% tax going to cover taxes levied on cement, steel etc…..

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