Service Tax on Apartment

I booked a flat in Bangalore in November 2005 which is still under construction and I have not yet taken possession. I registered my sale deed in April 2008. My original booking form from November 2005 states that service tax and VAT is additionally applicable. I am yet to make final installment payment to builder. My question is the following:

  1. My builder asked me to make service tax payment + VAT as part of my final installment. Given the amendment to service tax applicable to residential apartments, am I still liable to pay service tax?
  2. If I am paying service tax, should I collect a separate receipt for service tax paid for my apartment? The builder says they will provide a final invoice which states all applicable taxes have been paid and the invoice will show the company's TIN number. The builder will not give any separate receipt for service tax. Is this invoice sufficient proof that I have paid my taxes?
  3. If service tax and VAT is applicable in the above case, please help me understand the formula for calculation formula for the same.

Thanks and best regards,



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.




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 Vino

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.




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