VAT and Service Tax Clarification query?

Q: Hello, I had purchased a flat in Indore last year in June-2015. As the building is under construction The builder is charging me Service Tax of 3.5% on the total agreement value.
Now the property is constructed & at the time of registration, builder is asking for 5% VAT on the total agreement value. My question is VAT amount is calculated on the total construction cost of my alloted area (as in this case 1190 sqft) & not on the Total agreement value of selling? Also he is not providing me with the receipt of the VAT charges applicable.

Also can you clear me with the current registry charges + any other charges applicable at time of registry?

The builder is asking for 8.5% of the total agreement value, but i think the registration is done on the market value not agreement value?

Rumit Sharma, Apartment Resident, Pune

17th March 2016

Property Tax in Suyash Utsav Angan, Sangam Nagar, Indore

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Replies (2)

Hi Rumit,
For any sale to attract VAT, it should involve transfer of goods from one person to another. In case of under-construction properties, its the transfer of ownership rights from the developer to buyer in the form of a sale agreement, in select states. This tax is governed under the ‘works contract’ in the VAT law. For instance, VAT is charged at the rate of 1% of agreement value in Mumbai and Pune and 5% in Bangalore, but there is no VAT levied for apartments purchased in Noida-NCR, Chennai, and Kolkata.

farahan.k, Bangalore

21st March 2016

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Hi Farahan,
But buyers have to be careful that for apartments with carpet area of more than 2000 sq-ft or for property valued Rs 1 crore or above, service tax is levied on 30% of the cost of the property. This takes the service tax to 4.2 per cent for such properties. However, service tax is levied on the entire amount on other cost items such as Preferred Location Charges (PLC), Floor Rise Charges (FRC), initial maintenance charges and club house etc. In all these cases service tax is standard - 14%. EDC/IDC and lease rent to the extent paid to state government are excluded from service tax liability. Parking charges are exempted from the service tax bracket.

Puneet Laskar,

21st March 2016

Hi,
Service Tax and VAT is applicable to all under-construction property transactions. However, their actual value varies with states in which the property is being constructed. Presently, Service Tax is 14%. The basic cost of the property you pay includes the cost of land and construction. Service tax is applied only on the construction component. To simplify this, the government levies service tax on 25% of the cost of the flat. This effectively brings the service tax rate to 3.5% and VAT will 1% of agreement value.

Puneet Laskar,

21st March 2016

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