Tax liability on realestate property with reference to actual possession and legal possession

Under Section 11(4)(g) of the Real Estate (Regulation and Development) Act (RERA), the builder (promoter) is explicitly responsible for paying all outgoings, municipal taxes, water charges, and electricity charges until they transfer physical possession of the project or common areas to the allottees or the owners' association.Once physical possession is officially handed over to the Resident Welfare Association (RWA) or society, the operational and maintenance responsibilities shift. However, municipal corporation laws generally dictate that property tax liability aligns with legal ownership. Because the builder still holds the legal title (registered deed), local municipal bodies technically view the builder as the primary liable party until the mutation of property records takes place.

Builders routinely insert specific indemnity and "outgoings" clauses stating:

"Upon offering or handing over physical possession of the property/common areas, all subsequent municipal taxes, open space taxes, and outgoings shall be borne exclusively by the Allottees/Association, irrespective of whether the formal conveyance deed is registered."

If the RWA signed a handover protocol or possession letter accepting the common areas, they typically agree to assume operational liabilities from that specific date forward.

Is there any dispute in the given context? if so, what is the stand adopted by the builder and the owners association?

Thank you Mr Kalaiselvan for the prompt reply. 

You are welcome for your appreciations.

The builder is ready to register the property in the name of the association. The property has been completed in 2024 and is being used by the owners since then.Tax assessment, however has been done only recently,with retrospective effect and penalties and yet to be paid.Owners are anxious that once the regsitration is completed whether all the prior period liabilities will fall on them or on the builder.

In the situation whether the builder can take a stand that since the physical possesion has already been with the owners , the owners have to meet the liabilities. Like to have the correct legal position.Thanks

As per law the statutory cutoff for pre-registration and pre-conveyance liabilities rests firmly on the developer. If the owners accept the registration without protective clauses, the municipality will target the current registered titleholders (the association) for recovery, making it harder to collect from the builder later.

As per Section 11(4)(g) of the  Real Estate (Regulation and Development) Act, 2016, the promoter (builder) is responsible for paying all outgoings, including municipal taxes, until he transfers the common areas to the association of allottees.

The retrospective tax includes penalties because the assessment was delayed. Since the builder was the legal owner of the project from 2024 until the date of registration, any delay in tax assessment or non-payment of interim taxes is a statutory failure on the builder's part. The owners cannot be penalized for a delay in an assessment process they had no legal standing to initiate before registration.

To prevent the builder from walking away and leaving the owners with a massive retrospective tax bill, the Association must take a firm legal stance before signing the registration documents.

Do not sign a standard, generic conveyance deed. The Association must insist that a specific Tax Liability and Indemnity Clause be explicitly written into the registration deed. It should read similarly to this:

"The Vendor (Builder) hereby declares and covenants that all municipal property taxes, levies, assessments, and penalties accrued up to the date of execution of this registration deed shall be borne solely by the Vendor. The Vendor explicitly indemnifies the Purchaser (Association) against any prior-period tax claims or penalties levied by the municipal authorities for the period preceding this registration."

If the builder refuses to register the property unless the owners agree to take on the 2024–2026 retrospective tax liabilities, the builder is committing a "Deficiency of Service" and violating RERA.

The Association should immediately file a fast-track complaint under Section 31 of RERA seeking directions to compel the builder to:

1. Pay the retrospective tax and penalties accrued during his period of legal ownership.

2. Execute the registered conveyance deed immediately without imposing illegal financial conditions on the allottees.

Thank you Mr.Kalaiselvan for your time and the detailed response. Much appreciated.

You are welcome for your appreciations