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Service tax and vat for flat (Property Law)

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This query is : Resolved

Author : CompuGeek_Pune

Posted On 13 July 2012 at 18:31

Hello Sir,

I recently booked a flat in pune. At the time of booking builder told me that I need to pay service tax according to payment I will made as construction will progress.

When I am about to make agreement after 1 month of booking they are now telling me that I have to Pay "Service Tax" and "VAT" for total property( around 48L) which calculates to ( 1.75L aprrox) at the time of agreement only.
There is no progress in construction yet. They yet have to come up with Plinth level.

Please advice me is there any recent law or rule which make buyers to pay service tax and VAT for unpaid payments also?

Amit Patil


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Expert : Tajobsindia

Posted On 13 July 2012 at 19:20

Yes there is.

As per one of the latest notifications by the FM applicable w.e.f. 01-07-2012 a builder or developer is also now liable to pay service tax if any payments are made by buyers, before the completion certificate is given. This cost is also passed on to buyers.

If payments are made after the completion certificate is given, then no service tax is payable. Hence if a property is under construction and you as a buyer pay a booking amount, this is considered payment towards sale consideration before completion certificate is given, and hence you will be liable to pay service tax at the rate of 10.30% of 25% of the sale value i.e. 2.575% of sale value.

How does it impact you?

As per one of the latest notifications by the RBI to banks, stamp duty, registration charges and taxes such as VAT and Service Tax are to be excluded from property value when considering how much of a loan to give to the consumer.

So here, your cash flow management can become key.


You have identified an under-construction property worth Rs. 48 lakhs.
Property Value: Rs. 48 lakhs
Stamp Duty @ 5%: Rs. 0.96 lakhs
Registration Charge @ 1%: Rs. 0.48 lakhs
VAT @ 1%: Rs. 0.48 lakhs
Service Tax @ 2.575%: Rs. 123,600

The total value to be paid will be Rs. 51,15,600 is my view. Out of which ST and VAT components itself are going to cost you Rs. 1,71,600/-

Before the RBI notification, a bank would give you upto 80% of this value as a home loan, and you would put up 20% of the value on your own. This means you has to put up Rs. 10,23,120 as down-payment.

After the RBI notification, all these charges are excluded from loan amount.
The loan will be only up to 80% of the property value, excluding stamp duty, registration charges, VAT, service tax and other charges.

So the bank will offer Rs. 38.40 lakhs as a loan.
The remaining Rs. 12,75,600 will have to be paid by you.

It looks like this change is here to stay. The only way for you as a buyer to move, if you definitely want to buy a property, is forward. Also keep in mind the cardinal rule when taking on a major liability: have adequate term insurance . This way in case of any unfortunate event, the loan will not devolve on to your dependents.

BTW, I recently burnt my finance fingers in Pune's real Estate just last month thus hard way I learnt the fine prints and cautioning you in friendly way.

Expert : Nadeem Qureshi

Posted On 14 July 2012 at 08:08

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Expert : Nadeem Qureshi

Posted On 14 July 2012 at 08:09

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Expert : H.M.Patnaik

Posted On 18 July 2012 at 00:42

The answer to this query given by Tajobsindia is silent reg. the VAT liability. In my considered opinion , VAT liability only arises upon completion of sale and not before ownership of property is transferred to the buyer.

Expert : Tajobsindia

Posted On 18 July 2012 at 00:51

Bingo, thank you for the observation. ref.: Magus Construction Private Limited vs. UOI, (2008 11 STR 225)

The Maharashtra Government in the State budget has also introduced a new composition scheme on sale of under construction property along with land or interest in land @ 1% of the agreement value.

There is an impression in the mind of people that this is a new amendment and only under construction flats/units sold after 1st April, 2010 are chargeable to VAT @ 1%. This is not so, the amendment regarding tax on flat/unit under construction is effective from 20th June, 2006.

It is pertinent to note that the above cost can be avoided if a ready flat is purchased after the builder obtains completion certificate.

I hope I have clarified my understanding and even what I paid in my own flat purchase in the year 2006 with valid receipts now?



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