Service Tax on Apartment

As per latest amendments, Service tax is payable on under construction apartments i.e. in respect of which payments are received by Developer prior to completion certificate.

Service tax @10.30 % is payable on 25% value of basic consideration plus full value charged on any additional amenities, localational advantage, floor rise etc.

However, it is still not clear whether service tax shall be payable on new transactions or transactions entered prior to the amendments also. So just wait for clarification.

As notified vide notification no 36/2010 dated 28-6-2010 (corrected by corrigendum dated 29-6-2010), no service tax shall be leviable on payment made till 30-6-2010. Hence Service tax @10.30% shall be payable only on 25% of payment made on or after 1-7-2010. Further no Service tax is payable on parking charges.

Dear Sir,

Many thanks for your reply. Does this apply to VAT also? What is the rule for charging VAT?

My builder claims the following formula for VAT and Service Tax

VAT is @12.5% on 70% of taxable amount which is computed as (cost of flat + electricity board deposit + car parking + amenities)

Service tax is @ 10.3% on 33% of (above computed taxable amount + VAT)

The property is located in Bangalore if that makes any difference to the rates applicable.

Thanks for your advice in this regard.

Satyajit

As far as VAT is concerned, please check with any local consultant as the same is state subject and different states charge VAT on real estate differently.

For Service Tax: The Builder is incorrect in charging the same as the provision for charging ST on 33% of value was done away with in January 2009 and no ST was chargeable since then.

New provisions for ST are applicable wef 1-7-2010 only and ST will be charged @ 10.3% on 25% of amount received after 1-7-2010 only. Electricity Board deposit is not amenity, hence no service tax can be carged on the same. Parking has been specifically excluded from service tax.

As far as amentities are concerned, yes builder can charge ST on preferential location charges, Internal and External development charges received only after 1-7-2010. So if you have made payment till date, no service tax shall be payable.

1.How can i find if the Real Estate company is registered for taking VAT taxes from Buyers?
2. The receipts which they had issued me earlier didnt had VAT number on that. and on request to they dont Provide me the VAT

number, But asks me to pay VAT amount.
3.This VAT amount was NOT mentioned in my Sale Agreement ealier.
4. What is this ST(Service Tax ) and on what this is applied? I didnt had any construction Agreement done, i had only Sale

Agrrement, but still am i liable to pay VAT and ST?

Dear Mr Shankar

1. If the Real Estate Company is collecting VAT, it should issue VAT invoices mentioning their VAT numbaer. You can demand copy of their VAT registration. In most of the cases, levy of VAT has been challenged before High Courts and VAT is collected as abundant precaution. Please check whether your builder is depositing VAT with authorities or the court receiver. He cannot simply collect it and keet it to himself.

2. Please check for a clause in your sale agreement which authorises developer to recover any tax, cess, levy etc which may be imposed in future.

3. Service tax on construction of complex services is a new evil which has been introduced by 2010 Budget in respect of residential projects. Earlier the service tax department had clarified that no service element is involved in case of developer of projects. But now a deeming provision has been brought in and wef 1-7-2010, service tax @10% plus cess on 25% of agreement value has been levied on the developer in respect of under construction property which is to be recovered from customer depending upon terms of agreement. fo agreements prior to 1-7-2010, ST is leviable only on balance sum payable after 1-7-2010. So effectively one has to pay 2.575% ST on purchase agreement value.

Dear Mr.Vineet,

I have bought an apartment for 33lacs in chennai and I have made a payment of 28 lacs between 22/10/2009 and 18/06/2010 and the remaining amount after 01/07/2010. Please let me know whether the service tax will be calculated on 33 lacs or only on 5 lacs that I have paid after 01/07/2010.

Thanks in Advance

Mr Vinod

The sevice tax @2.575% shall be levied on Rs 5 Lakhs paid on or after 1-7-2010.

By the way, The Bombay High Court on 20-1-2012 has dismissed writ petition filed by MCHI against levy of service tax on under construction flats. hence the levy is now a certainity unless reversed by Supreme Court which appears to be a distant possibility considering recent spate of judgements in revenue matters.

Mr. Vineet.

Thanks for your reply. However my Builders chartered accountant claim that this is a mis-conception. They are of the opinion that the service tax of 2.575% should be levied on the entire 33 lacs as the service tax is in vogue since 2005

Thanks in advance

Mr Vinod

The Service Tax on construction of complex services is in statute since 2005, but due to many disputes and representations, the CBEC clarified vide circular no 108/02/2009 ST dated 29-1-2009 that no service tax is leviable in case of residential complexes.

However, Finance Act, 2010 introduced service tax on under construction residential complexes also by amending the definition of such services. Hence, now law is settled that service tax @2.575% is leviable on umder construction residential complexes where sale has been effected prior to completion of construction. The ST is leviable only on payments made after 1-7-2010. CBEC has issued specific notification for this purpose to exempt all advance payments made prior to 1-7-2010 from service tax.

Please refer to Notification no 36/2010 dated 28-6-2010 as corrected by corrigendum dated 29-6-2010. This can be shown to builder to assert that for all payments made prior to 1-7-2010, CBEC has specifically exempted them from service tax. The notification is reproduced below:

Thanks for the above posting. I bought a flat in January 2010 and paid 90% of the amount then. The remaining portion of payment includes parking charges, society maintenance etc. So how much will be liable for tax?

Also what about vat. I am more worried on that score since the builder keeps quoting that vat before 2010 April was 5% and after that 1%. Is that true? How can earlier tax be higher than the recent changes? Does not the recent date limiti set fro Service tax apply to Vat too?

Will be obliged please clarify.

Thanks