The budget 2010-11 brought rude shocking and a lot of confusion to prospective home buyers. But don’t get too shocked, you won’t pay service tax on the entire amount. The budget has suggested 10 per cent service tax on construction. For the past one month, many city builders have been asking purchasers to start paying up the service tax. Buyers are shock and say they were not informed of the additional levy when they had booked the flats. As per the budget, the service tax will be charged on only those residential projects which are still under construction.
Under construction Property
It should be noted that the service tax would be levied only on under construction property. A property is considered “under construction” till the builder receives a “completion certificate” from the relevant authorities. If the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no levy of the service tax.
The obligation of paying service tax is on the builder. So, you would not have to go through the hassle of paying it. It is the duty of the builder to collect this service tax from the purchaser and deposit it with the department. However, ultimately this burden would be transferred to the home buyers in the form of higher price. This provision would be applicable from 1st April, 2010.
Abatement allowed
Budget 2010 brought a rude shock to prospective home buyers. But don’t get too shocked, you won’t pay service tax on the entire amount. Abatement scheme, under notification number 1/2006 dated March 1, 2006, says that the contractor is entitled to claim abatement to the extent of 67 per cent of the value of services rendered by him. Hence the net effect of the tax could be lesser than the 3.4 per cent, since construction attracts service tax only on 33 per cent of the value. Recently Finance Minister has rolled back Service Tax to 25% of the value.
No Service Tax on resale properties
Service Tax is applicable only on property under construction or where a completed building has not received its occupation certificate. As resale properties would essentially have obtained a completion certificate, this tax would not be applicable to resale properties. Service Tax would not be levied on parking lot. Many builders also sell parking space. It has been categorically mentioned in the budget that any amount paid for getting a parking slot allotted would not be subject to service tax.
Service tax rolled back
There was some relief for the real estate sector with the finance minister offering for partial roll back of service tax that was imposed on the sector during the budget. Finance minister has rolled back Service Tax to 25% from 33% in the April session when house discussed and passed the finance bill. Only days after the budget, ministries of urban development and housing had appealed to the finance ministry for a roll back of the proposed tax. According to analysts, the quantum of impact will not be very big. However, it might see developers shifting focus to affordable developments.
Service Tax on Preferential Location Services
The service tax has been levied on any amount spent by the builder for the development of the complex – like building internal roads, paving the garden, etc. Service tax of 10.3% has also been levied on any payment made by you to the builder for getting a preferential location for your house / flat.
- Any floor rise amount paid for getting an apartment on a higher floor
- Any amount paid to get an apartment / house with a specific number
- Any amount paid to get an apartment / house facing a specific amenity, say a swimming pool, lake, park, sea, etc
- Any amount paid to get an apartment / house facing a specific direction (maybe as per vaastu)
There is a false impression being created that 10 per cent service tax is levied on the entire value of the consideration which is paid to the builder / developer. Service tax is levied only on 33 per cent of the value. It should be noted that the service tax would be levied only on “under-construction property”. If the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no levy of the service tax. Service Tax would not be levied on parking lot and resale property. For those who have booked their flats some time back and paid amount based on the stage of the construction, the tax will only have to be paid on the remaining installments and not on the entire value of the flat.
Most of buyers buy a house through a home loan. They book the house when the builder launches the scheme or when it is under construction, and make the payments based on the stage of the construction. This means that they buyers make most of the payment before the builder gets the completion certificate. Thus, the entire amount paid by them to the builder would be subject to service tax. If the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no levy of the service tax.
Tags: Property Buying, resale properties, service tax, service tax on purchase of under construction property, Service tax only on 33 per cent, Service tax rolled back, under construction property
Sir,
I have booked the underconstruction flat in Nov. 2007 as a 12.5% as downpayment. entire flat value is 18 lacs. Until July, 2009 I paid total amount of 11.5 lacs, 3 lacs paid in May 2010 and 1.75 lacs paid in Jan 2011. Now the flat is near completion. 1.75 lacs is pending to pay.
Now the builder is asking me to pay 1,17,000 as “vat & sales tax” & 88,000 as “stamp duty”. How will I defend my case with builder ??
Please give me some highlight…
you can send me your ideas by email also.
Sir, I have registered a resale flat under construction on feb-2011 from 1st owner. then How will pay services tax and vat? As I am not taken flat directly form builder?
Hi,
I have purchased a flat with cost of 18.5 lacks & paid the total amount before 1st july 2010 & registered. For amenities i have paid 1.25 lacks after 1st july 2010. i was taken completion certificate on 1st Jun 2010 & i am staying. now the builder is asking for service tax for the amount paid after 1st july 2010 & he was blocked my possition letter.
Dear Mr. Rajkumar,
In the following way the Service Tax is calculated:
For the Undivided Share of Land (USL) of your flat the Service Tax will not be calculated, say if your flat area is 2000 sft. and you are getting a USL of 600 sft and the land cost per sft is Rs. 1000/- then 600 x Rs. 1000 = Rs. 600000/- is exempted from Service Tax. Once you deduct the land cost from your Total Cost you will get the construction cost of your flat. You need to calculate 10.3% on 33% of the construction cost. The result will be your Service Tax.
Regards
Sunil Kumar N.S.
Sr. VP and Business Head,
Sumer Saffron Homes, Sumer Group.
sunil_ns_nair@yahoo.com
Is there any provision for an individual to claim the credit (for adjustment against annual income or I-Tax payable in the FY) for service tax paid on the house property purchased from a builder
I don’t know why Indian govt charges on basic necessities…!!! We pay to builder at our own risk without any assurance from the govt then why should govt charge any tax to us. I will have nobody to help me if my builder runs away with my money….Lets ask our govt to give us purchase protection…that way nobody will mind paying taxes even if it is more then issues circular…
hi,
i want to buy the office on c.g road which is closed atleast 5. years by another person & now that offer to me to buy . but how can i know how much payment of municipal tax & electricity i have to pay because that person not give me any detail & it is my relative i cannot say anything to him .i have only the copy of dastavej which is on his name.
I have booked flat in nov2010 and stamp-duty®istration is not done. Is there are policy of Paying VAT+service tax before stampduty
Service tax 2.575% calculate on agmnt . value or including on other charges i.e.mseb, soc, maint.,parking etc.? pl. let us know
Dear Mr. Anand,
If the builder is not insisting you to pay the service tax and VAT then why you are bothered. You can go ahead and register your property. It is the responsibility of the Builder to pay service tax and VAT which is shifted on the flat owners. If the builder is not asking you to pay the service tax and VAT, before registration you can go ahead and register your property. There is no policy of paying VAT+service tax before registration. In general, the builder will not register the property without collecting the Service Tax and VAT from the customer. If they do so, the responsibility of paying service tax and VAT lays with the builder.
Regards
Sunil Kumar N.S.
Sr. VP and Business Head,
Sumer Saffron Homes, Sumer Group.
sunil_ns_nair@yahoo.com
I have booked the flat which is under construction on 28june 2010 cost rupees 30 lac and paid 5 lac during booking and also done registration of flat on 28 June. service tax is applicable on purchase flat before 1 July and what will be rate of service tax,how mush i have to pay?
I have purchased a Undercontruction flat with agreement cost 17 lakhs will it attaract service Tax
Sir,
I have booked a flat last week which is a ready to occupy flat in Bangalore and the builder has given me the below break up of total value to be paid to them,
1. Basic – 2472500 (1075 built up area x 2300/sq ft)
2. Amenities –
Car Parking – 150000
Bescom – 75000
BWSSB – 75000
Generator – 75000
Total – 375000
3. Service tax and VAT -293292
4. Registration fee – 117500
1.My query here is that though the flat is a ready to occupy one,do we need to pay ST and VAT to the bulider?
2.If we need to pay, then what is the break up of ST and VAT?
3.Do we need to pay the ST and VAT only on basic cost OR amenities (375000) as well?
Kindly please guide me on the same.
Regards
Arun
how to check if the builder collecting the service tax from the buyers of flat, whether the builder is depositing that with the Government or not. I have a doubt that they just collect the same and does not pay to Government. I have told my builder to give me his service tax registration number also. Builder asked the service tax without any service tax registration number. ”can anybody help on this issue”
I HAVE PURCHASE SHOP AT COMMERCIAL COMPLEX AS ON 31-05-2011 AND THE BUILDER GOT THE COMPLETION CERTIFICATE OF SAME COMPLEX FROM LOCAL AUTHORITY AS ON 30-03-2011. NOW THE BUILDER DEMAND FOR SERVICE TAX , IS THERE SERVICE TAX APPLICABLE OR NOT.
SIR,
What is the date of applicability of service tax & what if the completion certificate is received before or after that date & what if the booking are around that date ,can u plz explain wid diff date examples,Thanku..
i booked the property in Dombivli which is under Thane Dist.
in oct -10 and Agreement also done in the Same Month and
possession is on Dec-11
At that time Builder told me
their is no Service tax for under construstion Property
Because GOVT given stay order on Service Tax and VAT
But in last week Builder said i have to pay Service Tax
As per my agreement value
so i am liable to pay of 33000/-
So my qurestion is that is that necessary to make the payment of Service TAx
as per new law
and i also i got the inforamtion from my friend
this law is not yet to passed but this Amt will keep in Fixed Deposit
and this amt may return in future if the law is not passed
So i am confused what to do in this situation
plz suggest me what shall i do ?
Iam going through same problem.. Please reply to my email how you got resolved …. My builder is also insisting me to pay the Service Tax which has not told earlier…..
hi,
i have purchase flat in kandiwali value is 79lacs.
do i have to pay ser.tax or is thr stay from HC.
how much i have to pay.
Sir, I have recently booked 2BHK flat in Mumbai with following details:
Area : 1161 sf (Carpet Area is 800 sf).
Base Rate : Rs 9297 psf
Floor Rise : 630 psf
With these details, request you to please advice total amount of service tax that I shall pay to builder.
Thanks in Advance.
I have purchased a duplex whose total price is 3125000/-(land cost is 600000/- and construction cost is 2525000/-) and the registry has been done on land i.e. the stamp duty has been paid for 600000/-.Can you please guide me how much service tax I would have to pay for this house to builder.
For paying this service tax to the builder I feel we should get a service tax invoice, what is the practice generally followed, do we ask for a service tax invoice or if the builder provides a service tax no that would do or the builder provides nothing, what should I do in this case ? Can somebody help, please ?
Good article,I like it very much!
Sir what is rate of tax (under COT scheme) and service tax for construction of Swimming pool , in apartments. And also taxation format if registerd under VAT regime. —Please elaborate with notifications under vat/cot,
Hi there, You’ve done an excellent job. I’ll certainly digg it and individually recommend to my friends. I’m confident they will be benefited from this site.
i have purchase under constructed flat at budlapur,the builder was made aggrement of Rs.900000 Lac.lower than market price and i have paid stap duty and registration on Market price of Rs.1150000 lacs i want information for service tax i paid on aggrement value or flat register value ..
do the needful….
thanks and regard
Tushar
I have booked a flat at Bhubaneswar. The builder is charging 3.03% of service tax on both total cost of the flat +parking cost. And additional Rs7/-perSqFt as Labour Cess,Rs12/-per sqft as maintainance charges,Rs12/-persqft as corpue fund.
Kindly advice me whether i am laible to pay these costs
Thanks & Regards
RK
Hi,
I booked and flat in 2011 and that time builder told 5% vat on basic flatcost and 2.6% service tax on (basic flat cost based on market value).
Now we need to go for registration at the end of April 2012. Builder is asking more money via vat and service tax. He is charging 5.8% VAT on (basic flat cost + Car Park + Electrical & maintanance + registration amount) and 4.06% service Tax on (basic flat cost + car park + electrical + registration amount + VAT)
So he has included regisration and VAT also for service Tax. Please advise what to do here. he is taking these taxes illegally.
Dear Sir ,
I have done registeration of the property under construction in jan 2012 ,Builder is supposed to complete the possision of the flat by may 2012 .
following points clarification is required .
I was paying service tax around 2.55% before budget ..Now builder is asking me to pay 3.09% after budget ..As still amount is pending to give the builder ,
Please clarify is new service tax applicable to me .as the registeration is done before budget or i have pay the builder as per new budget guide lines
Dear Sir,
I have done registration on 05 th may 2011 of the property under construction in 2012,Builder is supposed to complete the possission of the flat by may 212.
Now builder asking me to pay service tax 3.09% after budget.As still amount pending to give the builder. my flat Rs 1247000/-aggreement cost,should i pay the service tax now and how much please guide line me.
Dear Sir/Madam,
I had bought a flat in pune in April 2010. we paid 95% of payment to builder before April 2012. Only last demand note is remaining to be paid after April 2012.
Service tax not paid so far. Builder is now asking service tax with new rate (12 % rule) for entire amount which is paid before April 2012 than earlier 10%. I hope that new rate will be only applicable for the amount paid after April 2012 and old rate for the payment before April 2012.
Please let me the rule for this situation as large numbers of people are facing the same problem from builder.
Please reply to this email.