Vat on Apartment Purchase

On many occasions, disputes arise between builders and apartment purchasers with regard to the payment of VAT during the purchase process. The agreement for sale of an apartment should specifically mention whether the total sale consideration is inclusive of VAT or not. If the agreement is silent on VAT and the builder states that the total consideration amount is inclusive of the cost of construction, cost of land, various deposits and other incidental expenses etc., then he cannot claim additional VAT from the apartment purchasers at a later date.The material used for the construction of an apartment like bricks, steel, cement etc is liable to be taxed under VAT. It is to be mentioned here that labor charges involved in the construction of an apartment are not liable to be taxed.  While demanding the VAT amount, the builder has to furnish the detailed accounts of the costs of materials used, to the apartment purchaser.It should be noted that the rate of tax in Karnataka for payment of VAT on the costs of materials is only 4% and not 12.5%. This is because materials used for construction are classified as ‘Declared goods’ with a lower rate of 4%. The builder is supposed to obtain a registration number from the commercial taxes department for the tax collected and he must issue a tax invoice to the purchaser.