Some of the problems faced by Builders, construction contractors and developers
i. A lot of problems may arise in case of builders and contractors as provisions and composition scheme are not clear. Detail working has to be made before selecting any method. For example – A builder is constructing a building of seven floor and above, having sanctioned 25000 sq. ft, is liable to pay Rs. 4,65,000/- @ 18.60/- per sq. ft as per R. 27(4).
It is presumed that
a. Cost of construction is Rs. 2500/- per sq. ft.
b. 50% material is imported.
c. Average rate of LBT is 4%.
d. So LBT works out at Rs. 12, 50000/- as per regular method.
Hence it seems that lump sum payment method is beneficial. One more benefit is that, once lump sum payment is made, no need to produce details of purchases.
ii. Similarly, many Corporations make it compulsory to pay this amount at the time of sanction of plan. But it should be kept in mind that adoption of this method is the choice of the builder.
iii. Once payment is made as per lump sum method, then it is beneficial to purchases goods from outside LBT area as it may cheaper to the extent of LBT. Since most of the builders may out lump sum payment scheme and therefore will try to purchase goods from outside LBT area, the business of suppliers of inside corporation area may suffer.
iv. As per R. 27(4) the contractor who opts for lump sum payment of tax may make the payment of LBT in advance to the extent of 50% of such amount of due, on applying for grant of commencement certificate for such construction. But there is no provision about the time for balance payment. Similarly if any building is partly constructed on the date of implementation of LBT, there is no provision about the method of payment for non constructed area. According to me architect certificate should be accepted.
v. There seems to be no provision for refund if the quantum of the work reduced finally or if the work of construction is cancelled after the payment of 50% lump sum amount.
vi. Before paying LBT, a builder has to decide whether he will be constructing on his own or he will be sub contracting the work, again entirely or partly. Also he has to decide on whom the responsibility to pay the LBT will be fixed i.e. on him or on sub contractor. This planning has to be made to avoid double taxation as there is no specific provision of exemption for this purpose.
vii. For one project of the builder, five times LBT is charged or levied directly or indirectly. First 1% surcharge at the time of purchase of plot as per Sec. 149A. Secondly on the basis of sq. mtrs on construction area if he opts for composition as per R. 27(4). Thirdly his sub contractor or any dealer or person undertaking any work will pay 0.25% of total amount of contract value if he opts for composition as per R. 27(5).
Fourthly contractor’s suppliers or vendors will be including LBT if goods are purchased within the LBT area.Lastly again on the sale of shops or flats as per Sec. 149(A). This entire multiple taxation is exorbitant for which special provision of set-off is required.
viii. One can hold another view that LBT is leviable only once either as per R. 27(4) or R. 27(5) because proviso to sec. 152D says that “no LBT on the same goods shall be levied if such purchasing dealer proves to the satisfaction of the Commissioner that the LBT has been paid earlier on the said goods to the Corporation.”
ix. No procedure for application and time of payment is prescribed for lump sum payment of 0.025% as per R. 27(5).
x. The builder is not liable to pay LBT if construction scheme is outside the city area, since the goods never enter into the city area.
xi. If registered agreement to sale with payment of stamp duty is already completed before the implementation of LBT, then so surcharge of 1% is payable as per sec. 149A, if only deed of conveyance is pending. The matter is at present under consideration with the Urban Development.
xii. As per “Exception” in the definition of dealer, any individuals who imports goods for his exclusive consumption or use and a department of State & Central Government not engaged in business shall not be a dealer.
A contractor can accept construction work for the above on labour charges basis. In other words, material can be purchased in the contractee’s name and avoid paying LBT.
i. A lot of problems may arise in case of builders and contractors as provisions and composition scheme are not clear. Detail working has to be made before selecting any method. For example – A builder is constructing a building of seven floor and above, having sanctioned 25000 sq. ft, is liable to pay Rs. 4,65,000/- @ 18.60/- per sq. ft as per R. 27(4).
It is presumed that
a. Cost of construction is Rs. 2500/- per sq. ft.
b. 50% material is imported.
c. Average rate of LBT is 4%.
d. So LBT works out at Rs. 12, 50000/- as per regular method.
Hence it seems that lump sum payment method is beneficial. One more benefit is that, once lump sum payment is made, no need to produce details of purchases.
ii. Similarly, many Corporations make it compulsory to pay this amount at the time of sanction of plan. But it should be kept in mind that adoption of this method is the choice of the builder.
iii. Once payment is made as per lump sum method, then it is beneficial to purchases goods from outside LBT area as it may cheaper to the extent of LBT. Since most of the builders may out lump sum payment scheme and therefore will try to purchase goods from outside LBT area, the business of suppliers of inside corporation area may suffer.
iv. As per R. 27(4) the contractor who opts for lump sum payment of tax may make the payment of LBT in advance to the extent of 50% of such amount of due, on applying for grant of commencement certificate for such construction. But there is no provision about the time for balance payment. Similarly if any building is partly constructed on the date of implementation of LBT, there is no provision about the method of payment for non constructed area. According to me architect certificate should be accepted.
v. There seems to be no provision for refund if the quantum of the work reduced finally or if the work of construction is cancelled after the payment of 50% lump sum amount.
vi. Before paying LBT, a builder has to decide whether he will be constructing on his own or he will be sub contracting the work, again entirely or partly. Also he has to decide on whom the responsibility to pay the LBT will be fixed i.e. on him or on sub contractor. This planning has to be made to avoid double taxation as there is no specific provision of exemption for this purpose.
vii. For one project of the builder, five times LBT is charged or levied directly or indirectly. First 1% surcharge at the time of purchase of plot as per Sec. 149A. Secondly on the basis of sq. mtrs on construction area if he opts for composition as per R. 27(4). Thirdly his sub contractor or any dealer or person undertaking any work will pay 0.25% of total amount of contract value if he opts for composition as per R. 27(5).
Fourthly contractor’s suppliers or vendors will be including LBT if goods are purchased within the LBT area.Lastly again on the sale of shops or flats as per Sec. 149(A). This entire multiple taxation is exorbitant for which special provision of set-off is required.
viii. One can hold another view that LBT is leviable only once either as per R. 27(4) or R. 27(5) because proviso to sec. 152D says that “no LBT on the same goods shall be levied if such purchasing dealer proves to the satisfaction of the Commissioner that the LBT has been paid earlier on the said goods to the Corporation.”
ix. No procedure for application and time of payment is prescribed for lump sum payment of 0.025% as per R. 27(5).
x. The builder is not liable to pay LBT if construction scheme is outside the city area, since the goods never enter into the city area.
xi. If registered agreement to sale with payment of stamp duty is already completed before the implementation of LBT, then so surcharge of 1% is payable as per sec. 149A, if only deed of conveyance is pending. The matter is at present under consideration with the Urban Development.
xii. As per “Exception” in the definition of dealer, any individuals who imports goods for his exclusive consumption or use and a department of State & Central Government not engaged in business shall not be a dealer.
A contractor can accept construction work for the above on labour charges basis. In other words, material can be purchased in the contractee’s name and avoid paying LBT.
