All About External And Internal Development Charges In Real Estate

Extra Development Charges (EDC) In Real Estate
Real Estate investment is very tough for those who are investing for the first time and do not have core knowledge on investment in real estate and are illiterate to the terms EDC and IDC charges in real estate. Unfortunately, these terms are not even in common use so that a buyer can find out about EDC and IDC. Not even the builders nor government has given the attention in educating the buyers with these charges in real estate.

Once you are going to invest your money in the real estate, there are lots of charges and expenses that you need to incur. Among those certain kinds of charges, EDC charges are crucial. For the beginners, it is important to understand the market, the charges and why they have to pay them. Mainly, these EDC and IDC charges are very common in Haryana as the government is opposing charges on the properties which are under constructed after 2012. This is applicable to every city like Gurgaon and Faridabad.

A buyer should be familiar with the charges in real estate and its reason for deductions so that he can ask from the builders for exemption or if excess is charged then he can ask for the refund. One thing which everyone needs to know is that here the charges from all builders that government asks for is same and there is no change.

EDC Charges:
The abbreviation stands for External Development Charges. The charges are collected by the government through builders or developers so that they can carry on the external development in order to create a township or society. These external developments include electricity, water supply, roads, drains, sewage schools, hospitals, fire-stations, sub-stations, stadium/sports complex etc. Many other external features are included as the parts of external development which are to be established at the periphery or proximity of the project. Development of such civic amenities are taken care by state government and hence, they charge builders  for these amenities as External Development Charges.

It is mandatory for every builder to provide this charge to the government and somehow builders do not offer any proper information to the buyers, which in turn keeps them perplexed all the time while purchasing a property. They, in fact, do not educate to the buyers about the EDC in detail but charge them extra for the same. Not only the government officials are so active in informing about such charges, but also providing a rough calculation of what a client has to pay.

The government claims builders for the EDC as land use fee, scrutiny fee and institution fee along with fees related to permission, license and infrastructure. These fees are collected by the government so that they can carry on the development of the area where the township is proposed and in its vicinity.

Internal Development Charges (IDC) in Real Estate:
These are the charges that are parallel to the EDC charges and again these are charged by the government. This fund is utilized by the government in building the infrastructure and in the improving of socio-economic sectors of the state that includes highways, transportation systems, water supply facilities, electricity facilities and much more.

Unfortunately, not every builder pays these charges from their own pocket so they impose these charges on the customers as in per sq. ft. charges which they need to pay. Additionally, they are also considered as hidden charges which they actually pay to the builders.

How EDC Is Calculated?
Different state governments collect these charges in different ways.  For instance, these charges are collected on the basis of per gross acre in Gurgaon by the state government. Nevertheless, the builders calculate the EDC charges on the basis of per square feet so as to levy these charges on the buyers accordingly. Here, one needs to that these charges increase year after year and they are different for commercial and residential purposes.

EDC Calculation on Per Sq. Ft Basis

By understanding about FAR (Floor Area Ratio) of the area, it will be easy to understand the calculation on the basis of per sq. ft.

Ratio of total floor area of all buildings is to the area of the plot is referred as FAR. For instance, a plot with 1,000 sq. ft. area is permissible to cover the maximum of 3,000 sq. ft. of plot area if the fixed FAR is 3. Who decides this value? The development authority or planning department of the town and the country. This is so decided on the basis of enduring infrastructure of the locality or town.

Currently, For Gurgaon, FAR  varies between 1 -1.65 for residential plots.

Example:

Let’s consider FAR = 1.65
1 Acre = 43560 sq. ft.
Thus, total allowed built-up area = 1.65 x 43560 = 71, 874 sq. ft.

Taxes
EDC or IDC is itself a government taxes and taxes on taxes are levied by the government and thus, a buyer needs not to pay any service tax on the EDC. These charges do not fall under the service tax slab also. However, if a builder is asking for the service tax on EDC or IDC then the buyer should immediately ask for the return.

Conclusion:
Keep up-to-date knowledge of current FAR,  EDC and IDC charges in your locality and beware of the frauds imposing different charges at the same location. Get more ideas from the builders as well as from the government. Use RTI Act if required.