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CA. Vikash Dwivedi (Chartered Accountant)     24 July 2012

Clarification: vat & service tax on construction services

Service Tax and VAT on construction service has created lots of buzz among the property buyers. To me this is undue harship on those who are buying residential property for the purpose of residence and not as an investment.  Top of it Maharastra govt. resolved to collect VAT also. Althoug residential property is immoveable property and does not fall under the definition of Goods yet the VAT has been imposed.

Anyways, I am making an attempt to make picture litte clear. Of course my views are not final authority and views of LCI experts are most welcome. Also readers are advised to consult thier CA or Advocate before challanging your builder but yes below text and supportings will help you to put your case more strongly before builder.


By the Finance Act, 2010 the Government has amended the definition of Commercial or Industrial Construction Service [S. 65 (25b) read with S. 65 (105) (zzq)] and construction of Residential Complex [S. 65 (30a) read with S. 65 (zzzh)].

The scope is expanded to cover sale of flats/units under construction. Builders/developers are now liable to service tax if any payment towards sale consideration is received before the grant of completion certificate by the competent authorities for such flats/units. This means if a builder/ developer receives the Entire Sale consideration after Issue of Completion Certificate then his NOT liable to pay ST.


     Provision of Abetment:

After the Budget was introduced views were expressed that the tax liability on construction sector has been tightened at a time when the sector was recovering after recession. After considering the issue, abatement available for construction of industrial or commercial complex and also residential complex has been prescribed as 75%. This means now tax incidence will be the rate of service tax applied on 25 % of gross value of commercial or residential complex or unit, broadly representing the service component in the construction, subject to conditions (Refer Notification 29/2010-Service Tax, dated 22nd June 2010).  Importantly seventy five percent abatement will be applicable only if the gross value of commercial or residential complex or unit includes cost of land. Otherwise the existing rate of abatement of 67% would continue to apply.For e.g : If the agreement value of the flat sold under construction is Rs. 50,00,000 then the Service Tax @ 10.3% comes to 5,15,000 but payable is @ 25% which is 1,28,750.00

In other words 2.58% of the Agreement Value.

    The amendment is effective from 1.07.2010.



VAT on purchase of Flat in Maharastra: 

Maharastra govt passed a notification where in they have imposed VAT of 1% on all the residential property purchased on and after 1.4.2010


Hope this wil clarify the doubts to large extent.


 2 Replies (MTS)     28 July 2012

Hi ,

 Will the VAT charges applicable to all States.

I am living now in Chennai , Tamilnadu and booka a flat.

Builders are charging 5% VAT  as far as I heared no other builders are  charging VAT in Tamilnadu

How can I check whether VAT is applicable or not?

Info Seeker (supervisor)     17 October 2012

How about property which was brought in 2009, are the buyer liable to pay VAT?

if Yes than how much % of VAT?

Any document source to refer?

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