Bought Property Between 2006 & 2010? Pay 5% VAT

Bombay HC rejects Builders' demand for uniform VAT in a case against govt order

If you have bought a flat, shop or a bungalow between 2006 and 2010 in Mumbai or anywhere in Maharashtra, there's bad news for you: you will now have to pay 5% VAT on the purchase price as the Maharashtra government has won the case in the Bombay High Court, which was filed by builders to challenge the imposition of 5% VAT. 
However, those who have bought property after April 2010 have to pay only 1% VAT, because the state government reduced this tax in 2010. 
While some buyers may have already paid VAT, but those who haven't paid yet will receive notices from developers for VAT dues. The Maharashtra government will levy the tax with retrospective effect at 5% of the value. In 2006, Maharashtra had imposed 5% VAT, but later in April 2010, this was reduced to 1%. But now, since the developers' appeal on this matter, requesting to keep the tax uniform at 1% for all buyers, has been rejected by the Bombay High Court, the government will now recover 5% VAT for flats bought between 2006 and 2010, according to a circular issued by the state government. 
Reacting to the development, builders' organisation MCHICredai and Credai-Pune Metro have already moved the Supreme Court with a special leave petition. The state wing of developers' apex body Credai-Maharashtra on Thursday issued a public notice stating: "As per the government circular, VAT has become applicable to flat purchasers from June 2006." 
According to a Credai spokesperson, the new burden on a customer who bought a flat for . 50 lakh works out to a minimum of . 2.5 lakh. 
Maharashtra followed the example of Karnataka in imposing 5% VAT, but this led to an anomaly as the other components of the tax system followed in Karnataka are totally different from the ones in Maharashtra. 
Unlike Maharashtra, Karnataka does not have the 'Ownership of Flat Act' and therefore developers in Karnataka prepare two separate sets of documents — one for the share of land on which stamp duty is levied and another on construction, for which no stamp duty is paid. 
Sensing resistance to the 5% rate, Maharashtra had reduced VAT to 1% from April 1, 2010. The government, however, is now levying 5% on the flats, throwing thousands of buyers into a fresh financial tizzy. Many developers are gearing up to send notices to consumers for collection of outstanding VAT.