© 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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The Haryana Draft 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 proposed a composition scheme (draft) for the Developers and invited comments/suggestions.

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The Haryana Draft 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 The Haryana Draft 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 9 July 2014 B Background The Haryana government has come up with a draft composition scheme for the developers vide notification no. Web 6/ H.A.6/ 2003/S.60/2014 dated 5 July 2014. The key highlights and our comments are as follows: Key highlights  The term ‘Developer’ has been defined: A person who is engaged in the 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  The developer may opt to pay tax under the new composition scheme at the proposed rate of 1 per cent of the amount specified in the agreement or value for stamp duty purposes, whichever is higher  The developer whose assessment has not yet reached finality can opt for the scheme with effect from 1 April 2007, provided tax is paid voluntarily along with interest  Upon acceptance of scheme by the assessing authority, all appeals/revisions/review petitions pending before the appellate authorities/courts need to be withdrawn  The 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 - claim input tax credit - claim deduction of tax paid by the sub- contractor.  In case of wrong/false declaration or calculation, the tax paid shall stand forfeited
  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.  Excise and Taxation Commissioner can issue a detailed guideline. Further, it is proposed to increase the composition rate in respect of works contractors, other than developer, from 4 per cent to 5 per cent (effective rate 5.25 per cent). The stakeholders are invited to give suggestions with respect to the proposed composition scheme. The suggestions can be given within 10 days of uploading to the website. Our comments The scheme is a welcome step towards simplifying the VAT landscape for the developers. However, the scheme provides certain challenges as follows:  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.  Requirement to pay interest for past liability: VAT was not paid by the developers in the past owing to substantial dispute on the issue till it was settled by the Supreme Court. Further, the current VAT does not provide assessment of tax as per the principles laid down by the Supreme Court. Levy of interest under the scheme, for the past period, would burden the developers. 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. Demand of VAT at full rate on such goods would result in unreasonable tax burden. Further, the scheme may be prone to challenge on the Constitutional powers of the state government to collect tax on imports.  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. A comprehensive representation highlighting various challenges should be submitted for consideration before the Additional Chief Secretary to the Government of Haryana.
  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 Bangalore 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 4/F, Palal Towers M. G. Road, Ravipuram, Kochi 682 016 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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