Labour cess and its implication on under-construction property

With all builders now making delivery of an under-construction property (flat, floor or independent house) a panchvarshiya yojna (even decent builders take around 5 years to offer first phase of rightful possession), buyers are regularly facing burden of more and more government taxes and charges.
Labour cess is just one of them.
We discuss below some of the key points about this cess with respect to an under-construction property:

What is Labour cess all about?
The requirement of this cess was laid out in BOCW (Building and Other construction worker) Act, 1996. However, its true implementation to under-construction residential properties was brought to force in states around 5 years back.

How is Labour cess calculated and who is it submitted to?
BOCW Act mandates that the employer has to deposit 1 % of total construction cost as labour cess with the state/local authorities which (authorities) in turn transfers the benefit to the labours registered with them.

Who is responsible to pay?
If employer of an under-construction property happens to be a government organization or NGO, the responsibility of depositing labour cess to authorities lies with the contractor. Otherwise (if employer is a private organization), the responsibility lies with the principal employer.
Hence for private builder group housing projects, it is the builder/promoter who is supposed to deposit the cess. As always, the builders transfer this load to the buyers in form of labour cess.
Generally, builders in Noida, Greater Noida region have been demanding labour cess as part of final demand notice to the
tune of 19 psf to 21 psf
. In other words, it implies that builders assume their construction cost to be in the range of 1900 to 2100 psf.

What can a buyer do?
Since most of the BBAs (Builder buyer agreements) have a clause of builder charging the buyer in case of any government taxes or charges, the buyer has little option left but to pay the said amount. Buyers however can question the builder on the theory behind calculation of exact construction cost based on which labour cess has been arrived to.

Hope the above clarifies few doubts regarding purpose, workflow and responsibilities with respect to Labour cess when it comes to an underconstruction property.

Comments/Feedback invited.

Last updated: March 13, 2015 at 10:32 am

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