Is your builder duping you for VAT?

Make sure you check your payment bills before paying the five per cent VAT tax to the builder. According to sales tax department, many builders have already collected the money from buyers, but have failed to deposit it with the government. So, if your builder sends you a notice asking for the VAT tax, confirm that he isn't charging you for the same thing again.

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According to the sales tax notification, builders have to give VAT for the flats they sold under construction between June 2006 to March 2010 and the amount would be five per cent of the agreement value. While builders are now sending notices to the buyers asking them to shell out this amount - so the builder can pay the tax to the government before August 31 - a fresh note from the Sales Tax office has created a stir.

The note claims that the builders have collected the taxes from the buyers but haven't deposited it in the government treasury. "After scrutinising the accounts books of developers, the Sales Tax Department has learnt that after the Bombay High Court judgment, many developers have collected taxes from their customers, but have failed to discharge their tax liability by depositing the collected tax into the government treasury."

Earlier this month, several offices of top builders were raided, as they had failed to deposit the money collected by them as VAT. According to sources, 35 builders were raided and more than 2,000 builders were sent notices after they failed to deposit the tax.

Anand Gupta, treasurer for Builders Association of India, said, 99 per cent of builders haven't collected the taxes and that very few builders have collected the tax and not deposited the money. "Any builder who collected the taxes and didn't pay the government has done wrong. However, whole draft on this VAT tax isn't going to last. The case is in the court, and we are sure to succeed." He further added, "Many builders hadn't collected the tax, but had taken an undertaking from the buyer stating that they would be made to pay the money in form of tax, whenever demanded."

According to insiders, the Sales Tax Department has pegged the VAT collection to Rs 800 crore and lakhs of home buyers will be affected by the decision.