Amendment in Service Tax for Under Construction Property

Comments(123) Sub Category:Service Tax Posted On: Jul 01, 2010

The budget 2010-11 has proposed to levy service tax on all sales of under-construction properties from July 1, 2010. The property buyers have to shell out an extra for payment made for purchase of property. Finance Bill 2010 has introduced eight new services to charge service tax. This includes Special services provided by a builder etc. to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges. There have been further amendments to the Finance Bill, 2010, which have been passed when the Bill became law. The following major changes have been made by the Finance Act 2010 for under construction property.

Amendment made by the Finance Act 2010

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  • An Explanation is added to section 65(105)(zzq) and (zzzh) which deems construction of a new building and complex intended for sale, wholly or partly, by a builder to a person before, during or after grant of completion certificate by the competent authority to be services provided by the builder to the buyer/prospective buyer except in situations where entire amount is paid by the buyer only after the receipt of completion Certificate.
  • Insertion of Explanation will be applicable to the cases wherein the construction activity has yet not commenced, going on or having been completed but completion certificate not received and the buyer makes payment to the builder. It will not affect the transactions wherein the payments have been made before 1-7-2010.
  • Service Tax exemption is provided to construction done under the Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana by notification no. 28/2010 dated 22nd June 2010.
  • Insertion of new clause zzzzu in section 65(105) i.e. levying of Service Tax (ST) on the amount collected towards preferential location or internal / external development. Such as services provided by a builder to a buyer in providing preferential location or external or internal development of complexes on extra charges.
  • Deletion of the word “service” from title of section 65(25b) and deletion of the word “service” from clause 65(105)(zzq) i.e. definition of commercial or industrial construction.

Contractor is entitled to claim abatement

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. 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. The finance minister has increased abatement from 67 per cent to 75 per cent. The abatement is subject to the following conditions:

  1. No exemption would be applicable for mere completion and finishing services
  2. The increased abatement of 75% would not be applicable in cases where the cost of land has been separately recovered from the buyer by the builder or his representative. This means that the abatement would have to be calculated on the entire value of sale of flat/unit. Effectively the rate of service tax shall be 2.575 (25% * 10.3%). Also by presumption the notification has indirectly considered value of land at 8% (75%-67%). This in my view is not correct.
  3. The abatement is subject to non-admissibility of Cenvat Credit on inputs, capital goods or input services.
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Authorities for issuing completion certificates

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. However the ministry has sought legal opinion as local authorities in some states do not issue completion certificates. The government is thinking of allowing some independent authorities, such as architects or builders’ associations, as a sufficient proof of completion.

For the purpose of issuing “completion certificate” by “competent authority” it has been clarified by notification no.1/2010 that for the purposes of sub-clauses (zzq) and (zzzh) of clause (105) of section 65 of the Finance Act, the expression ‘authority competent’ includes, besides any Government authority,-

  • Architect registered with the Council of Architecture constituted under the Architects Act, 1972(20 of 1972); or
  • Chartered engineer registered with the Institution of Engineers (India); or
  • Licensed surveyor of the respective local body of the city or town or village or development or planning authority

who is authorized under any law for the time being in force, to issue a completion certificate in respect of residential or commercial or industrial complex, as a precondition for its occupation.

No Service tax

  • From July 1, all sales of under-construction property will attract service tax. However, resale properties would not levied service tax as resale properties would essentially have obtained a completion certificate.
  • No service tax if entire payment for the property is paid by the buyer after completion of the construction including certification by the local authorities.
  • The low-cost housing segment (property worth less than Rs. 20 lakh) will be exempt from service tax when the same is rendered as part of Jawaharlal Nehru national Urban Renewal Mission (JNNURM) and Rajiv Awaas Yojana. The taxable service of construction of complex in the context of these two development schemes have been kept out of the ambit of service tax.

The property buyers have to shell out an extra for payment made for purchase of property from July 1. It should be noted that the service tax would be levied only on under construction property. The ministry has sought legal opinion as local authorities in some states do not issue completion certificates. The low-cost housing segment (property worth less than Rs. 20 lakh) will be exempt from service tax when the same is rendered as part of Jawaharlal Nehru national Urban Renewal Mission (JNNURM) and Rajiv Awaas Yojana. Service Tax would not be levied on parking lot and resale property. All sales of under-construction houses from July 1 will attract service tax with the finance ministry notifying tax on new services. Service tax has also been levied on any payment made by buyer to the builder for getting a preferential location.

 

123 Responses to “Amendment in Service Tax for Under Construction Property”

  1. Sanjay Kumar says:

    My agreement has been done in june 2010 but all payment and registry has been done after july2010.In agreement builder has written in one place that the 3125000/- including tax(as per govt. rule) and in last they have written that if any tax liblities imposed on builder by govt. in neer future then purchaser has to pay that amount to builder.Please guide me in this case.

  2. jrshinde says:

    i am jayendra shinde
    i want to know who is pay service tax builder or buyer.
    bcoz the builder is develop this property and he suppose to pay this service tax.
    bcoz he was given to us lots of money as flat booking.
    pls revert back asap

    jayndra shinde

  3. Lily Pan says:

    I’d have to check with you here. Which is not something I usually do! I enjoyed reading this post

  4. BJ Patel says:

    I have purchased a house(in apartment) this year which was under construction (property value is less then 20 Lac) and i have paid near about 75% of the total value of the property and service tax on it. and now builder has applied for BU (Building Use) permission , as i have applied for the loan remaining 25% amount for loan.

    1) So do I have to pay Service Tax on that (25%) which will be paid to the builder by the bank (Loan amount) , might be After received BU permission ?
    Or
    If the home loan disbursement is done before BU permission ?

    2) Can i show this service tax which i have paid and get the benefit from the Income Tax (for year 2011-12 ) ?

  5. Shashi Agrawal says:

    One of my client purchased Commercial Office on single payment from the builder which is a joint venture.Is he liable to pay service tax?

  6. Manickam says:

    I have purchased an individual villa in a gated community with 12 such villas & 1 block with 6 flats is constructed. The land of my villa has been registered separately and construction agreement has been done with this builder. This community consists of 3 types of villa models, so the plan sent for approval consists of 4 villa’s per plan. In this case do I need to pay Service tax? Since as per plan it is only 4 villas, still do I have to pay the service tax, if so how much of the construction cost?

  7. Sanjay C says:

    my flat possession is ready and i also paid the service tax accordingly of my payments made to bulider. But now on possession builder demanding the service tax on devlopment,electricirty and club house charges @ 12.36% without deducting the abatement of 75 % . Is this is accordance with the law.
    And more shocking he is also demanding the service tax @12.36 % on yearly maintenance charges.

    please let me know earliest and highly oblige for your response.

  8. M.H. Sayed says:

    I Have booked the flat (under construction) on 15/07/2010 in pune the Agreement Value of the flat is Rs 1285700.00 90% payment has been made n I m getting the possession on 15/04/2012 Am I liable to pay Service Tax.

    Reply.

  9. Shankar Pisal says:

    I booked the flat in under construction apartment in April 2010 and registry done on 19th May 2010. Agreement cost is Rs. 1687400/-. I paid part payment amount Rs. 218000/- before 1st July 2010. Can you tell me -
    1) Do I have to pay service tax on entire agreement amount, though i done registry in 19th May 2010 i.e. before 1st July 2010.
    2) Bank loan payment done on 31.03.2012. Do I have to pay the service tax on only bank loan amount.
    3) Do i have to pay the service tax also on part payment (Rs. 218000/-) done before 1st July 2010.
    4) Do i have to pay the service tax on MSEB, Maintenance cost, club house charges, etc.
    5) How are the service tax calculations.
    6) How will be the VAT charges.
    Now builder is demanding for s. tax & VAT amount. Request you to please guide me.

    Best Regards,
    Shankar Pisal (Mob. 9890790190)
    E-mail : shankar.pisal@indiatimes.com

    • subhash chandra says:

      I booked the flat in under construction apartment in April 2010 and registry done on 10th June 2010. Agreement cost is Rs.1340000/-. I paid part payment amount Rs. 183320/- before 1st July 2010. Can you tell me -
      1) Do I have to pay service tax on entire agreement amount, though i done registry in 10th June 2010 i.e. before 1st July 2010.
      2) Bank loan payment done on 30.06.2010. Do I have to pay the service tax on only bank loan amount.
      3) Do i have to pay the service tax also on part payment (Rs. 183320/-) done before 1st July 2010.
      4) Do i have to pay the service tax on MSEB, Maintenance cost, club house charges, etc.
      5) How are the service tax calculations.
      6) How will be the VAT charges.
      Now builder is demanding for s. tax & VAT amount. Request you to please guide me.

      Best Regards,

      Subhash Chandra

  10. SK GUPTA says:

    MY BUILDER IS CHARGING SERVICE TAX CLUB MEMBERSHIP, DEVELOPMENT CHARGES,ELECTRIFICATION, FIRE FIGHTING,POWER BACK-UP AND FACILITY CHARGES. MORE OVER HE IS CHARGING 18% INTEREST ON LATE PAYMENT ON THESE CHARGES, IT IS NOT CERTAIN THAT HE IS DEPOSITING ALL TAXES AND LATE FEE TO THE GOVERNMENT. PLEASE HELP ME TO EXPLAIN ON THESE POINTS.THANKS

    • Shamim Laskar says:

      I am also facing the same problem. I am in the process of buying a under construction flat. 95% of payment is completed and rest 5% is to be paid in months time when the builder gives possession.
      A week before my builder send me a letter asking me to pay the service tax and vat along with late fee(Late fee calculated from July 2010). I am okay with paying the service tax and vat, but why is he charging me late fee when this is the first time he is asking me for the tax and vat. Is there any such directives from govt.? Moreover he is not ready to give a receipt mentioning the amount he is charging me as late fee separately. He says he will be giving me a combined receipt of total amount of vat, ST and late fee. I am also looking for the proper guidance. Can any one please provide us with correct guidance and actions to be taken.

  11. HULE B.V says:

    Let me know the —–
    1) I had purchased flat IN AUGUST 2009 & Done agreement in sept-2009 at rate of 20,00,000/- ( Agreement value )
    2) i had paid amount16,71,000/- till 30th JUNE 2010
    3) Balance amount 3,29,000/- paid up to 30.12.2011
    4) exactly how many % Service tax is applicable for me on which amount.
    5) If agreement value is 20,00,000/- than can be exempted for service tax–
    6) As on today , really government had started to take tax from bulider– what is last date of submit this service tax.
    7) What is structure of service tax for purchased valued property.
    8) Any more taxes are applicable for against new property purchased.—- pl. know the details

  12. vswami says:

    The apex court has, in re. Rashtriya Ispat Nigam limited recently reported, held to the effect that, if it has been mutually agreed, the liability is to his account, and has to be paid and borne by, the service provider. In one’s strong view, however, the ruling cannot be taken to be an authority to say that, service provider who is the ‘assessee’ can, unless agreed to, pass on the burden, particularly as a matter of routine, to customer. For an account, so also so certain related viewpoints, read>The apex court has, in re. Rashtriya Ispat Nigam limited recently reported, held to the effect that, if it has been mutually agreed, the liability is to his account, and has to be paid and borne by, the service provider. In one’s strong view, however, the ruling cannot be taken to be an authority to say that, service provider who is the ‘assessee’ can, unless agreed to, pass on the burden, particularly as a matter of routine, to customer. For an account, so also so certain related viewpoints, read > Here and here

  13. Cornelia Wiliams says:

    It’s the first time when i’ve seen your site. I can understand a lot of hard work has gone in to it. It’s really great.

  14. Actual I am working in a Infrastructure company in accounts section in odisha. our company selling the ready flats and collected 2.575% service tax from customer. But I think in Budget 2011-12 the service tax increased.How many % service tax increased in this matter. Please send me details in my mail ID

  15. YAGNESH says:

    I HAVE BOOKED FLAT AT KHARGAR,TILL CONSTRUCTION HAS NOT STARTED AND BUILLDER ARE SEND ME A NOTICE TO PAY SERVICE TAX?
    should i have to pay service tax now or after compliltion of project?

    yagnesh

  16. Anuj gupta says:

    i am a builder(delhi), land will be given by the company for which i am doing construction(chennai),money for construction will also be received in advance to facilitate speedy construction.
    Now my suppliers are not issuing bill on the name of company and i am not registered assesse in VAT or service tax.
    Now what should i do

  17. Clifford Berisford says:

    Good write up!

  18. Pradnya says:

    I m going to purchase a flat on 8th Jun’12. Building is under construction (85% complete). Property Agreement value is 13.5 Lacs. Same day i will give 2 Lacs to builder & rest will be loan.
    1) so how much service tax & vat i have to pay & when i have to pay it.
    2) can i get loan from bank on this service tax
    3) can i get income tax benefit of this service tax

  19. vaibhav patange says:

    Let me know the—-
    1) Service tax information——– i booked the flat in airoli ,navimumbai which is underconstruction in the month of August 2011.(now it is 95% complete).so builder was asking for service tax at the time of booking.
    My question is it is applicable for me ?Because i heard the matter is under High Court.

    2)For Superbuiltup area— Builderr sale flat to me with superbuiltup area.But in agreement it mentioned builtup area.Now recently i read a article in newspaper that flat cost is as per carpet area.
    So, my question is what I do?

  20. Sukhdev Singh says:

    The most confusing part is that do we have to pay 2.575% service tax on 25% of the purchase agreement or 10.36% service tax on 25% of the purchase agreement.

    Nobody seems to mention this anywhere

  21. Sukhdev Singh says:

    The most confusing part is that do we have to pay 2.575% service tax on 25% of the purchase agreement or 10.36% service tax on 25% of the purchase agreement.

    Nobody seems to mention this anywhere

  22. Mahesh says:

    As of today service tax is 2.575% of agreement value.
    Anybody having a idea how much it will be from 1st Jully 2012?

  23. kajal says:

    Can anyone tell me what will be the valuation of which service tax would be applied?
    Is it the agreement value? or is it the value calculated by the govt at the time of registration.
    As in my case I have book my flat on june 2009 at 1830000/-[eigteen lakhs thirty thousand including garuage]. Now my flat is yet not completed. And now my flat+garuage price has gone up to 4200000/-[fourty two lakhs]. I have paid 6 lakhs after july 2010. So what will be my service tax , or am iexemted from service tax. Builder has not informed me of anything of service tax till now.

  24. satish says:

    I have purchased flat in april- 2010 ,part payment made in may 2010 remaining balance paid by banker. possession will be in dec.12. service tax is payable?

  25. G Nilesh says:

    I have purchaed a flat in Aug-11. Now builder is asking for service tax of 2.577. I am unable to pay it right now due to my current financial condtion. also een after possession of flat i have identifed some of the works which builder has commited not done. So what is the resolution to get all work done & payment of ST. can we do any dealy in payment of service tax. Who is the preliminary responsible for paying the ST to govt? is it flat owner or builder? pl. repaly if anybody knows more / better than me.

  26. Shobhit says:

    Hi,

    I got a quick question, A quick search reveals different answers from different forum

    My question is i bought an under construction apartment in April 2010, I paid about Rs 5 Lakhs before 1 July 2010, Now apartment is ready for possession(Completion certificate of an Apartment should be 2012) , My question is whether i need to pay service Tax on entire amount or have to pay after deducting 5 Lakh?

    Currently i have to pay Rs 80000 as a service Tax however if i deduct Rs 5lakh from total Cost of Apartment(Nearly 40 lakh) i would save approx Rs 10000

    Please confirm if i have to pay Service Tax(Approx 4.2 %) on Total value of an apartment or after deducting Money which was paid before 1 July 2010?

    Regards

  27. Nitesh says:

    I have purchased flat on Jun 2010 which was under construction.

    Aggrement entered on Jun 2010 and cost was 2000000/-.

    200000/-(2 lacs paid before July 2010 , so there is no service tax on this payment)

    1700000/-(17 Lacs paid after July 2010 and before receiving O.C) and i have paid service tax on this amount.

    100000/-(1 Lac paid after receiving the OC ) .

    So my question is, Do I need to pay service tax on payment of 1 Lac which was paid after receiving the OC.

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  29. Ranjeet says:

    I have booked the flat on February 2010 less than 20 lakh. I registered my flat July 2012. Builder has asked the service tax. am I entitle for service tax.

    Yours faithfully

    Ranjeet

  30. pandit d.v. says:

    I have purchased flat in Aug 2009 and paid stampduty/registration charges according in Aug 2009. Builder never demanded service tax during agreement nor collected service tax and paid to the court as a member of MCHI. Builder has recently demanding service tax amounting to Rs. 20000/-. Please advice whether should I have to pay service tax since applicability of service tax is in force w.e.f from 01.07.2010.

    Regards,
    Pandit

  31. Balram Katre says:

    I purchashed flat under construction property in month of 13-May-2012 and made booking a 1 lac rupees and remaining booking amount(515000) I paid payment on date 10-Jun-2010.Total cost of flat is 25lac(sale deed cost 10lac and construction cost 15lac).
    So somebody will help me on service Tax which payable to the builder.

    Thanks in Advance

    Balram
    09898934401

  32. prasad says:

    I have purchased flat in Jan 12 ready possision flat from one of the partner of builder. Builder got completion certificate upto 4th floor in oct 11. my flat was included in it. builder not got completion certificate for onther 5 floors. now he is asking VAT and service tax to me. pl. guide.

  33. R.GANESH says:

    We have contractor as labour charges centering work for residential project No. of flats 12, We can apply service tax to builder, we have service tax registered ,
    please guide thanking you

  34. Amol says:

    I have taken flat at Pune in month of july 2012.
    I haven’t got possesion of the flat yet.
    My builder asking me to pay property tax of this year.
    Should I pay property tax of this year as I haven’t recived possesion?

  35. pravin jain says:

    Please advice me for my following problem:

    I had purchased under construction flat and made agreement on 19.01.2012 @ Rs. 25,00,000/-.

    I had paid Rs. 22,50,000/- at the time of agreement i.e. on 19.01.2012.
    Balance 2,50,000/- to be paid at the time of possession.

    Now builder is asking balance 2,50,000/- with additional Service tax of 3.09% on 25,00,000/- and VAT of 1% on Rs 25,00,000/- as flat is ready for possession.

    In my agreement, there is clause to pay service tax and vat if any applicable by me.

    Now my question is
    1. how much I have to pay
    a) Service tax @2.575% of agreement value and VAT @1% of agreement value as I had booked before 31.03.2012 OR
    b) Service tax @2.575% of 22,50,000/- plus 3.09% of 2,50,000/- and VAT of 1% on 25,00,000/- OR
    c) Service tax @3.09% of agreement value and VAT @1% of agreement value as I am making final payment after 31.03.2012

    3. How one can insure that builder has deposited your ST and VAT to government?

    Please advice
    Pravin Jain

    • Pradnya says:

      HI Pravin,

      option (b) is correct if you are having the receipt of 22,50,000/- dtd. 19.01.2012, else you will have pay 3.09% ST on your agreement value as option (c)

      And for your 2nd Qu, frankly, i am also waiting for this information. If you get, pls let me know.

    • Adv. Gopal Vanjani, Nagpur says:

      The date on which payment is made is important. In case of payments made on or before 31-3-2012, the rate of service tax shall be 2.575%, and for payments made after 31-3-2012, the rate shall be 3.09%. The occupation certificate will be applicable only if the flat agreement is after the occupation certificate is obtained. If on the date of agreement, there was no occupation certificate, it means the flat is purchased which is under construction.
      If the purchaser wishes to know whether the payment is made to Govt. or not, the following should be ensured:
      1. The payment is made to the Builder by Account payee cheque.
      2. Proper receipt is obtained mentioning that the payment is towards service tax.
      3. A copy of the chhallan may be insisted evidencing the payment made to Govt.
      4. The information can be asked from the Competent authority under RTI Act, 2000.
      I hope the querries are properly replied.
      -Advocate Gopal Vanjani, Nagpur.

  36. pramod says:

    i have purchased flat from bulider after he was obtained occupancy certificate in july2009 in maharashtra mumbai, now as per new notification from sales tax department bulider have to 5% VAT, now i have doubt that whehter i have to pay VAT as i have taken flat after completion of work, reply.

  37. mukesh patil says:

    I have purchased an under-construction property in Kharghar. Agreement done on 15.04.2012 for 30L. & 93% amount is paid by me. Possession still balanced. How much service tax I should paid to builder. He is asking me 2.67% on the amount paid till 31st March 2012 & 3% on the amount paid after 31st March 2012

  38. Suman says:

    Hi,
    I have purchased my flat in FEB’2011.I have paid 80 % amount of 30 lacks which was the cost of flat.Now , Builder is demanding service tax & Vat .
    Is this really applicable for me ,please let me know .

    My point is they should charge on service tax & VAT on my remining payment .

  39. rajkumar singh says:

    Hi,
    I have purchased my flat in feb’2011.I have paid 80 % amount of 20 lacks which was the cost of flat.Now , Builder is demanding service tax & Vat .
    Is this really applicable for me ,please let me know .

    My point is they should charge on service tax & VAT on my remining payment .
    please call me 9833182057

    it is a underconstruction property

  40. Clement D'silva says:

    Dear Sir/Madam,

    I have purchased a flat on Sept,2011 under construction in Nallasopara (W) of 615(area) @ 2800 which amounted Rs 17,22,000 (Seventeen Lakh Twenty Two thousand rupees only) amount fully paidto builder by cheque.Now as if now building is still under construction and I havent done registration I told builder to cancel the flat on Sept,2012 and also got buyer for same flat .

    Now builder agreed to cancel the flat he took the cheque from new buyer of 17,22,000 and also charged service Tax around Rs 70,000 (seenty thousand) and after cheques are cleared He issued me cheque of Rs. 16,77659 (Sixteen Lakh Seventy Seven Thousand Six hunderd fifty nine only) and deducted 44,341 (Fourty four thousand three hundred and Fourty One rupees only) as Service Tax.

    As builder has already received Rs 70,000 from new buyer as Service Tax I asked him why is he deducting my amount than builder said that he will pay Rs 70,000 of new buyer as service tax and claim against amount 44341 and I ask how long it will take he said its government job he doesnt know.

    But as per my knowledge Service tax is paid only once for one flat and as he has charged amount of Rs 77,000 from new buyer, he can directly adjust that amount and pay me my amount of Rs 44,341

    Can you please me exact solution for these on clement21us@gmail.com

  41. I have taken flat in Panvel
    I had purchased under construction flat and made agreement on 03/12/2011 @ Rs. 2626250/-.

    Now builder is asking with additional Service tax of 3.09% on 26,26,250/- and VAT of 1% on Rs 26,26,250/-.
    In feb 2012 he send me letter of service tax 2.575% and now he is demanding me for 3.09% on my agreement value 26,26,250/-

    so, please advice me on this problem.
    how much I have to pay Service tax?

    Thanks

    Sandeep Ghadge

    REPLY

  42. umesh says:

    i have registered flat sinnce 7th july 2010. & agreement cost Rs.1188950 so that can i pay service tax 2.57%?

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