BJP-Ruled Haryana Imposes Retrospective Tax on Home Buyers

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The state government’s decision to amend the Haryana Value Added Tax came despite assurances from the Centre of no imposition of such taxes.

Credit: LinkedIn

The Haryana government has allowed for the imposition of a retrospective tax on property buyers. Credit: LinkedIn

New Delhi: In January this year, finance minister Arun Jaitley categorically stated that the retrospective tax law has hurt the country as it scared away investors and reiterated in the Budget that the government would “not resort to such (retrospective) amendments in future”.

While Jaitley may have spoken for the Centre, developments in the recent past show that BJP governments in the states are not willing to sacrifice their revenue, even through retrospective taxation, at the altar of providing a stable and predictable taxation regime.

For instance, the Haryana government has amended the Haryana Value Added Tax (VAT) and issued a notification allowing for the imposition of a retrospective tax on buyers of properties.

“Almost 50 cases have been filed against this tax which is being imposed on a retrospective basis across the state,” said Pradip Rahi, general secretary of DXP Welfare Association, a federation of resident welfare associations (RWAs) representing nearly 70,000 flat owners at the under-construction Dwarka Expressway, which would connect south-west Delhi to Gurgaon.

Rahi said while some RWAs have already gone to court against the imposition of the VAT on home-buyers, many others are negotiating with builders to ensure that they are not laden with additional interest and the litigation does not lead to further delays in delivery of their flats. He said most of the new projects in the state were running behind schedule and home-buyers were stifled under the burden of payment of the equated monthly instalments and their rent.

Rahi said many of the residents have also met the representative of the Excise & Taxation Department, Gurgaon, and other officials to understand the assessment of VAT. He said it was unfortunate that the state government had paid scant regard to the well-being of the residents while imposing the new tax.

However, given that the Haryana government has not even used the Rs 500 crore collected as internal and external development charges from those who have purchased properties along the Dwarka Expressway to put in place the promised infrastructure, the latest move did not come as a surprise to most.

Faced with further delays in getting possession of their properties, should they choose to battle the government legally, many residents have also started negotiating with the builders on the payment schedule.

“There is a concern on exact amount and right time to pay it. From the legal perspective, it doesn’t make sense to go court directly as tax related matters take a lot of time and also the chances of winning the case are low. Moreover, many cases have already been filed by the builders and trial on the same is also going on,” Rahi said, adding that another realisation that has dawned on the applicants is that they would not be able to get possession of their flats till the time the issue was finally settled in court.

One of the developers from Gurgaon, Ramprastha Promoters & Developers Private Limited, recently wrote to all its home buyers stating that a bench of the Supreme Court had in the case of M/s Larsen and Toubro Limited v State of Karnataka (TS-156-SC-2013-NT) upheld that VAT is applicable on sale of under-construction flats on the grounds that it involves an element of works-contract. “Due to said judgement, the builders/developers etc. engaged in selling flats would be liable to VAT. This levy is not prospective but would also be applicable on past projects,” the builder explained.

Subsequent to the above judgment, the builder said, various states governments have made necessary amendments under state VAT laws in line with the Supreme Court judgment to levy VAT on sale of under construction flats by the developers and builders.

With Haryana also amending its VAT law, the company wrote, “consequently, the Haryana VAT authorities have undertaken detailed assessment for the real estate projects/ developers and have raised VAT demand on most of the developers for sale of under-construction flats for the past periods. The company has also received similar VAT demand/ assessment order on the under-construction flats sold, from Haryana VAT authorities.”

The retrospective amendment by the Haryana government has not only imposed additional financial burden on the buyers, but has also gone to show that there is no consistency in the BJP’s policies and what it says and does when it comes to taxation matters.

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