Hidden costs in purchase of flats
When you decided to buy a flat, was there a point when you were sure that the price fixed with the developer was final, but ended up paying additional amount towards the end - payments that were neither expected nor disclosed upfront? Did you wish there was a firm sale price of a flat, something that assures you that there is no need for any further payments? If the answer to these questions is yes, then probably you did not clear all the payment terms adequately with the
developer nor looked for the “hidden costs” in buying a flat.
VAT and service tax are two of the additional amounts a buyer may be asked to pay when the project nears completion and when you are near handing over the flats. The statutory tax liabilities of builders vary depending on the size of the project - larger the project more are the liabilities. One of them is the service tax which is levied for commercial or industrial construction services, site formation and clearance, excavation, construction of residential complexes with more than 12 units, work contract services. The rate of service tax is 12.3 per cent on 33 per cent of the cost of construction. This works out to about 4 per cent of the overall cost of construction . This amount will be indicated in the builder’s agreement with the buyer.
Thumb rule
Many builders of small projects prefer to pay at the rate of 2 per cent of the cost of construction . However, builders undertaking large projects say that the tax, if worked in detail, will only work out to 1.25 per cent and prefer to do that.
In short, as a rule of thumb, buyers of residential flats can take that the tax amount to be not more than 2 per cent of the sum indicated in the builders agreement where the project has less than 12 apartments and not more than 6 per cent of the cost of construction of the flat for projects with more than 12 apartments. (including VAT and service tax put together). To avoid confusion, reputed builders quote the rate for the built up area along with area details upfront.
(The author is former National President, Institution of Valuers)
C.H. GOPINATHA RAO
Printer friendly
page
Send this article to Friends by
E-Mail
Property Plus
Coimbatore
