© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
© 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated...
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Haryana Composition Scheme for real estate developers – VAT on sale of residential and commercial properties (flats, shops, etc.) may be discharged at the rate of 1 per cent of the total contract value

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The Haryana Government has notified a composition scheme for the real estate developers vide Notification No. S.O.88/H.A. 6/2003/S. 60/2014 dated 12 August 2014.

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Haryana Composition Scheme for real estate developers – VAT on sale of residential and commercial properties (flats, shops, etc.) may be discharged at the rate of 1 per cent of the total contract value

  1. 1. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG IN INDIA Haryana Composition Scheme for real estate developers – VAT on sale of residential and commercial properties (flats, shops, etc.) may be discharged at the rate of 1 per cent of the total contract value 19 August 2014 The Haryana Government has come up with a new composition scheme for the developers vide notification no. S.O.88/H.A. 6/2003/S. 60/2014 dated 12 August 2014. The key highlights and our comments are as follows: Key highlights  The term ‘Developer’ has been defined: A person who is engaged in construction of civil structures, flats, dwelling units, buildings, etc., either commercial or otherwise, for sale in pursuance of an agreement along with land/interest in land where value of land/interest in land is included in the total consideration.  Registered developer may opt to pay tax under the new composition scheme with effect from 1 April 2014 (by filing an application within a period of thirty days from the date of publication of the notification), at the rate of 1 per cent of amount specified in agreement or value for stamp duty purposes, whichever is higher.  Unregistered developers may opt for this scheme by filing an application along with the registration application.  Developer opting for the new composition scheme would not be entitled to: - collect tax from the customer; - purchase goods from outside Haryana. However, where goods are procured from outside Haryana (including import from outside India), an appropriate rate of tax applicable on such goods is required to be paid along with interest; - claim input tax credit; - claim deduction of tax paid by the sub- contractor.  Excise and Taxation Commissioner can issue a detailed guideline.
  2. 2. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.  Further, the composition rate in respect of works contractors, other than the developer, has been increased from 4 per cent to 5 per cent (effective rate 5.25 per cent). Our comments The scheme is a welcome step towards simplifying the Value Added Tax (VAT) landscape for the developers. However, the scheme is likely to pose certain challenges as follows:  Payment of liability for period prior to 1 April 2014: The draft scheme allowed payment of tax for the period prior 1 April 2014, however, the notified scheme is made effective from 1 April 2014. Thus, it appears that developers cannot pay VAT under the scheme for the period prior to 1 April 2014. Payment of tax on value of goods, with respect to such period, would need consideration of various issues such as valuation for deduction of land, deduction of expenses towards labour, stage of construction, etc.  Prohibition regarding collection of tax: As VAT is an indirect tax, developers may prefer to pass on the incidence to the customers. As the scheme does not allow this, the scheme may be of limited significance to such developers who would want to pass on the burden to customers.  Computation of tax liability on account of inter-state purchases/imports: Developers have generally purchased goods upon payment of full Central Sales tax (without Form ‘C’) in the past. Payment of VAT at full rate on such goods, along with interest, would result in unreasonable tax burden.  No deduction of payment made to the sub- contractor is allowed: In case of completely sub- contracted projects, VAT is paid on all goods by the contractor. Further, as per the Supreme Court (in an earlier case of L&T) VAT is not required to be paid by the main contractor. Thus, the developer should not be held liable to pay VAT where the entire construction activity is sub-contracted. However, the scheme does not support this principle.  Issue of Form ‘C’/ Form D1: While the forms are allowed to be issued to contractors other than developers, the scheme does not specifically allow issue of forms to developers. In case the forms are not allowed to be issued, it would lead to increase in project cost.  The ambit of expression ‘aggregate amount specified in the agreement’: It is not clear whether it would include payments collected from buyers such as escalations which are not quantified in the agreement.
  3. 3. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bengaluru Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi Syama Business Center 3rd Floor, NH By Pass Road, Vytilla, Kochi – 682019 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010

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