Legal Corner » Sales Tax

Will I become party to evasion of stamp duty?

atoneplace — Sat, 24 Oct 2009 08:20:39 +0000

Question asked by Anonymous:

Hi I have a question to ask. I bought a house from Builder in Hyderabad in August 2006. The agreement of sale was for 33 lakhs. The registry was done at a lower cost 18 lakhs in august 2006 itself. The flat was under construction that time. I also took a loan of 27 lakhs from the bank for it. Now I am selling the house for 62 lakhs. The buyer is taking over my loan. The bank will give me a difference between loan amount sanctioned and selling price i.e. 30 lacs (Cheque) and the buyer will give me 5 lacs. So in total I am getting 35 lakhs in my account. Now the questions are:

1. The Buyer wants to get the registry of the flat done at 25 lacs. How is that possible as he is giving everything in white? How will I explain to income tax authorities as to where this 35 lac came from when I sold the house for 25 lacs (as per the registry) and where did I get the money (27 lacs) for prepayment of loan. Will I become party to evasion of stamp duty in this case? (There are two agreements, one is agreement of sale which shows the correct price on which the bank finances and the other is the sale deed which shows the amount in the registry and is registered)

2. What documents do IT authorities refer when calculating Capital Gains?

3. The builder is the agent through which I am reselling the flat. And I am paying him a commission of 100/- sq. ft. Now, I got to know that he is fooling the new customer by collecting service tax and VAT from him which is not applicable on Resale Flat. And he will keep that amount with him. Now the question is if the new customer some day knows that Service Tax and VAT was collected from him and is not applicable then can I be in trouble as the builder is just the agent, I am the Seller of the flat? What should I do?

Thanks in advance

Vatsala Answers:

1. The agreement of sale showing the full amount will protect you against income tax queries, despite the lesser value in the sale deed. You can show the extra amount towards fittings, furniture, right of use of car park, right of use of common amenities, deposits kept with builder for water, electricity and maintenance charges.

2. It is open to the IT authorities to rely on the sale agreement (if it is deposited with the bank) and the sale deed.

3. It is not correct for the builder to collect VAT and service tax again from the new purchaser. It should be accounted for under brokerage or some other account. In any case you need not collect it in your name. Vatsala

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Sales & Service Tax issues

atoneplace — Thu, 17 Jan 2008 01:28:52 +0000

QuestionÂ asked byÂ Divya from Banglore:

The size of the land is 1350 sqft approximately .After registering the appartmentÂ to our individual names in late 2007 ,we singed a construction agreement with the promoter to build and deliver the house to us. We have financed the appartment through housing loans.

The builder is now close to handing over the possession of the properties and there is one issue at this point.
1) There has been around 3-4 Lakhs that’s been collected by the promoter for each of these properties towards Sales & Service Taxes. This community development at the current phaseÂ has 35 plus apartments in two or three separate blocks.
a)Â I had already paid most of the S&S taxes to them, As per my interpretation of the recent rulingÂ from tax department in late 2007, the buyer is not liable for Sales & Service Taxes. When I asked them about this they said it does not apply to them and I’m still responsible for all the service taxes.So could you please help us in clarifying the follwing points.
1)Are we liable to pay serivce tax according to the latest rule.If yes how much percent?
I’m really puzzled and shocked at this situation and kindly request you take me as your client and help me out.
Please let me know how can I futher reach your office and engage your office in helping me with this issue.

Thanks in advance,
Kind Regards,
Divya

Vatsala Answers:

Hi Divya your question is similar to Rajesh Padmanabhanâ€™s question. See my post â€œSales and Service taxâ€¦Legal Help please!â€ on January 8th 2008. Good Luck!

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Sales and Service tax…Legal Help please!

atoneplace — Tue, 08 Jan 2008 02:45:10 +0000

Question asked byÂ Rajesh PadmanabhanÂ from Los Angles, California:
Hello Vatsala Madam,
My name is Rajesh Padmanabhan, I’m basically from chennai and I’m currently living in Los Angeles as an NRI.
I currently in need of a Legal consultation and support from a Real Estate expert lawyer in India who could help us with our current situation.
Â
Myself Rajesh Padmanabhan, my brother Mohan Padmanabhan who too lives here in CA are and our Mother Meera Padmanabhan who is living in chennai have bought individual homes in a Gated community in chennai outskirts, the gated community is called PARSN’sÂ “RENASCENCE” and it has been promoted by
Â
Parsn Urban Development Ltd.
129 Parsn Villa, Luz Church Rd., Chennai, , India
()4424991734, 4424995988 fax, http://www.parsn.com
Â
The size of the land of each of this three individual house is varying in size from 2200 sqft – 3000 sqft approx. After registering the land from the promoter Parsn to our individual names in early 2006 through our PoA and then we singed a construction agreement with the promoter to build and deliver the house to us. We have financed all the three houses through housing loans.
Â
The builder is now close to handing over the possession of the properties and there are twoÂ issues at this point.
Â
1) There has been around 3-4 Lakhs that’s been collected by the promoter for each of these properties towards Sales & Service Taxes. This community development at the current phaseÂ has 40 plus individual homes and 20 plus apartments in two or three separate blocks.Â The issue I have here are:

I had already paid most of the S&S taxes to them, As per my interpretation of the recent rulingÂ from tax department in late 2007, the buyer is not liable for Sales & Service Taxes. When I asked them about this they said it does not apply to them and I’m still responsible for all the service taxes.When I requested them to provide me the receipt for the saervice taxes especially ( I came to know they deposit the service tax in bulk and so I requested them for a a copy of their deposit with a break down of service tax against my properties listed in the company letter pad) . They are refusing to give that and asking me to pay the rest of the money if not they will charge 24% interest on balance after 15 days. I’m really terrified and not sure what to do at this point.
Â
2) They have sent me a new possession agreement which I was never aware or discussed prior to now and asking us to sing it before taking the possession. I don’t want to enter into any agreement at this point as I’m not obligated to and for which I have not agreed before. I’m attaching you the copy of the possession agreement that they have sent me and it seems to completely favor the promoter other than for few points.
Â
I’m really puzzled and shocked at this situation and kindly request you take me as your client and help me out.
Please let me know how can I futher reach your office and engage your office in helping me with this issue.
Thanks
Rajesh Padmanabhan

Vatsala Answers:
There is no blanket ban on the sales and service tax.

1. The service tax is calculated only on the villa. In Karnataka this is 2.06%. A recent circular has made this tax applicable for projects with more than 12 units. (It is not yet gazetted). This is chargeable only if the builder outsources the work of construction to outside contractors and does not build it with in house staff. The costÂ is divided into two parts, the first being material cost of the villa and the second being service cost for constructing the villa for you. Very roughly, 1/3 of the total cost of the villa (minus land cost) is shown as service cost and 12.36% is charged on this as service tax. This will work out to roughly 4.4% of the total cost of the villa. However you should determine the exact figure from a chartered accountant.Â

2. The sales tax (now called as the V.A.T. or Value Added Tax) is 8.76% of the cost of the villa.Â It differs from state to state.Â

3. Regarding the attached possession agreement, it is a fairly standard document, except for the fact that you should include a warranty clause for defects noticed up to 1 year of handing over possession stating that such defectsÂ should be rectified free of cost by the developer. You are advised to contact a chartered accountant in Chennai if you need further clarifications. You are also advised to contact a lawyer in Chennai who can send a legal notice to the developer if necessary for furnishing the bills.

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Is the customer liable to pay service tax according to the latest rule by the Government of India?

atoneplace — Mon, 07 Jan 2008 07:26:56 +0000

QuestionÂ asked by Divya k c from BangaloreUS:

Respected Mam,
My name is Divya k c, I’m basically from Kerala and I’m currently living in Bangalore. I am currently in need of a Legal consultation and support from a Real Estate expert lawyer in India who could help us with our current situation.
Myself Divya k c, my Husband Sinoj Nair who too lives here in Bangalore have bought an Appartment in Bangalore, from the Multi Group Builders.
The size of the land is 1350 sqft approximately .After registering the appartment to our individual names in late 2007 ,we singed a construction agreement with the promoter to build and deliver the house to us. We have financed the appartment through housing loans.
The builder is now close to handing over the possession of the properties and there is one issue at this point.
1) There has been around 3-4 Lakhs that’s been collected by the promoter for each of these properties towards Sales & Service Taxes. This community development at the current phase has 35 plus apartments in two or three separate blocks.

a) I had already paid most of the S&S taxes to them, As per my interpretation of the recent ruling from tax department in late 2007, the buyer is not liable for Sales & Service Taxes. When I asked them about this they said it does not apply to them and I’m still responsible for all the service taxes.So could you please help us in clarifying the follwing points.

2)Are we liable to pay serivce tax according to the latest rule.If yes how much percent?

I’m really puzzled and shocked at this situation and kindly request you take me as your client and help me out.
Please let me know how can I futher reach your office and engage your office in helping me with this issue.

Thanks in advance,
Kind Regards,
Divya, Bangalore

Vatsala Answers:

Clarification a) In a case where the builder, promoter, developer or any such person builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of the said residential complex, the contractor in his capacity as a taxable service provider (to the builder/Promoter/developer/any such person) shall be liable to pay Service tax on the gross amount charged for the construction services under construction of complex service [Section 65(105)(zzzh)
b) If no other person is engaged for construction work and the builder/promoter/developer/any such person undertakes construction works on his own with out engaging the services of any other person, then in such cases,-
â€¢ Service provider & service recipient relation ship does not exist.
â€¢ Service provided is in the nature of self-supply of services.

Hence, in the absence of service provider & service recipient relation ship & the service provided are in the nature of self-supply of services, the question of providing taxable service to any person by another person does not arise. Vatsala
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What is Single window charge? Difference between Service Tax and Sales Tax.

atoneplace — Tue, 18 Sep 2007 01:09:26 +0000

Question asked by Dinesh:

I am looking to buy a property from a builder in Bangalore. The builder has added single window charges, which include

Bangalore Water and Sewage Supply Board
Karnataka Electricity Board
Sales Tax – Taxes as applicable for sale of the property
Service Tax – As applicable5.Â Â Â Â Â Legal Charges – Charges for stamp paper, legal fees etc.

My question isâ€¦ why is the builder charging sales tax and service tax both? Also are there any other charges that will come to me later, other than those mentioned?Â

Vatsala Answers:

It has recently been clarified that service tax is not applicable to builders. Hence you no longer need to pay service tax on your apartment. You may have to watch out for khata transfer fee, car parking charges, maintenance charges, club house fees, Association formation charges, etc., These can be clarified at the time of signing the agreement.

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