The home loan rates were getting lower. Banks were luring buyers again. The loan papers were out and hectic calculations were on in drawing rooms till late at night. Then along came Local Body Tax (LBT).
If you thought groceries, daily necessities and a few other things, which, you would seldom need, were the only items affected by the imposition of LBT, well, think again.
Mumbaiites may well have to bear the brunt of the new tax when they buy an apartment from now on, since builders will now have to pay between R100 to R200 per square metre as LBT to the Brihanmumbai Municipal Corporation (BMC), for every floor they construct. No prizes for guessing whom this cost will be transferred to.
Late last week, when developer and President of Indian Merchants’ Chamber Niranjan Hiranandani shared the stage with trader’s protesting against LBT, some people wondered aloud whether his support for the traders had a hidden agenda.
Now they say they are sure. Legal experts confirmed to SUNDAY MiD DAY that LBT is applicable on real estate and a lump sum amount of Rs 200 per sq mt for construction above seven floors shall be levied. The tax is lower for construction up to seven floors with elevator service (Rs 150 per square metre) and R100 for construction up to four floors, without an elevator. This means that realty prices are not coming down in the near future.
Explaining that builders currently pay 30 per cent tax to the BMC compared to the 12 per cent they paid a decade ago, Hirnanadani told SMD that the tax burden on the sector is likely to only go up. “Yes there’s an option in the rule book which says a builder can pay this LBT as a lump sum. And any tax means an increase in prices. Most of it is finally passed to the consumer,” he said. “In Thane alone, we have to pay Rs 20 per square foot to get fire clearance,” he added.
According to advocate and tax expert Vinayak Patkar, LBT rules categorically mention that people have the option to pay a lump sum amount to the corporation or pay up in slabs. “However, the rules do not specify whether the tax is levied on built-up area, super built-up or carpet area. This may lead to ambiguity,” warned Patkar.
Manohar Shroff, Secretary, MCHI-Navi Mumbai, agrees that with LBT being levied on constructions, the burden will be passed on to buyers. “We are being burdened with so many taxes. The VAT already exists and now LBT on construction would be another cost. Builders paying LBT will finally pass it on buyers. This will affect realty prices,” said Shroff.
While LBT has been implemented in other parts of Maharashtra, it would come into force in Mumbai from October 1 in place of the Octroi tax.