• Mar
  • 03
  • 2010

Service tax on Buying under construction flat

Buying under construction flat will attract service tax on payment made before completion of construction

The Budget proposals have thrown up a dampener for the housing industry. Construction services have now been brought under the ambit of the service tax in an unexpected move that would raise cost of apartments that are still under construction. As per the Budget proposal, the finance ministry has suggested that construction would be deemed to be a taxable service if the building or complex is still under construction and approval from the concerned regulatory authority — which in most cases is the resident municipal authority — hasn’t yet been granted. The levy would cover all construction of complex service or commercial or industrial construction services, the Finance Bill suggested.

The service tax levy would be 10.3% and would also apply to additional services such as those offering preferential locations for flats in multi-storey buildings where flats in each floor are priced at a premium due to their location. This too has been described as a service and hence taxable, according to the proposal which was tabled in Parliament on Friday by finance minister Pranab Mukherjee. The premium is typically levied on categories such as flats or apartments that are above a certain floor rise or have other high value locations such as being in front of a garden or a sea or any other preferred locality.

“The proposal is to tax construction if the entire payment for the flat is made before completion of construction,” said consulting firm RSM Astute executive director K H Viswanathan. “This would increase the cost of the apartment and may discourage potential buyers.” The service tax would be 10% on 33% of the price of the apartment, while on the remaining 67%, tax won’t be levied.

Till now, for all apartments under construction, customers paid in instalments based on plinth level construction and also on the progress in building activity. Banks too lent money to the customers according to the requirement of the builder. Now most developers would ask customers to pay the entire value of the building if they sought to lock in at a certain value. This would mean paying the entire sum before the construction. Typically, in cities such as Mumbai, where there is a pressure on space and hence apartments and flats are much sought after, customers booking for flats in an under-construction building, is very common. “The service tax and excise duty hike on cement would increase the overall cost of apartment by about 10%,” said Dharmesh Jain, managing director of Nirmal Lifestyles, a Mumbai-based developer. “It’s a negative step and we are considering to meet the finance minister to plead for a relook on this measure,” he added.

But there are other positive measures that the Budget proposes such as allowing pending projects to be completed within a period of 5 years instead of 4 years, for claiming deduction of profits, as one time interim relief. There is also a suggestion that the commercial area included in a housing project would now be 3% of the aggregate built-up area of the housing project or 5,000 sq. ft, whichever is higher, compared to the existing limit of 2% and 2,000 sq.ft. respectively. This would help developers and real estate companies to make their projects more viable.

Sandeep Kanoi

63 Responses to “Service tax on Buying under construction flat”

  1. Murugan says:

    I have purchased Apartment which is under construction,and also not issued completion certificate by builder and also no hand over happened.Apartment cost around 5600000 including car parking-150000,Land-2600000,EB-75000,Registration-150000,etc..There is no swimming pool and no amenities.

    Builder is asking me to pay service tax Rs.1,20,000.Do i have to pay these charges because service tax is applicable if builder provides a services,He sold a property how it would consider as service.

    Could you please clarify my doubt.

    Murugan

  2. VSP says:

    I booked flat in oct 2011 and registration done in Jan 2012 and My flat value is 13,50,0000 . match 2013 Builder demand service tax & vat . it is applicable for service tax. & how many % service tax & vat please reply because i am confused.

  3. ashish kayare says:

    Dear Sir

    I had purchased a flat in Aurangabad ( M.S.) Aug 2008 and builder has given me a intimatin latter recently in month of sept 2012.,regarding service tax.

    While purchasing the flat, I paid some amount in advace by cheque and got this flat is in ready puggestion after 2 month , due to bank loan processing it takes 2 months & paid balance amount by bank,Is it consider as a ready puggestion or under construction. and pls tell me what should I have to do in such case .pls suggest
    Will it be consider a ready pugestion or under construction.
    If it consider ready puggestin than do we need to pay service tax?

    Waiting for your reply
    Regards
    Ashish k

  4. janardan r jadhav says:

     I have purchase anew flat under construction in kalyan of rupees 2244500/- and ihave paid stil now Rs.986500/- & now builder demanding me service tax of 3.09 on paid amount . please tell me fact of s.tax

  5. Hasan Israr says:

    i purchase a flat and ma agreement was in november 2010 but postion was nt taken till now but now builder is saing to pay service tax in april 2012 my flat value on agreement is 9 lakh 5 thousand nly please suggest me nw much service tax we pay 
    mumbra thane

  6. Dhananjay Bhogle says:

    please suggest me how to calculate service tax and vat on property under construction purchase agreement done on 7th April 2010 ,
    flat cost =1428750, if possesion date is 23-march-2012 , then how much service tax do i need to pay .

  7. Hiren Monpara says:

    Please let me know whether I can claim rebate on service tax paid to the builder?
    If so, under which section I should claim it?
    I am salaried person.

  8. Pandey says:

    what if the first installment for the flat was paid before the said service tax was brought into enforcement. Is the tax still liable?

  9. Anju Panwar says:

    This is like a vicious circle wherein we pay taxes on every thing we use or buy, out of the money which we earn & already been taxed (even before we receive it in form of TDS)

  10. Sunil says:

    The govt is all set to loot the common man. they have no other work than burdening the common man with tax..phew..fed up of staying in such a country

  11. Yogesh says:

    This is how the government is stealing common mans hard earned money. I am saying stealing because already the government considers Flat as a commodity and its a sale. So they charge the Stamp duty + registration which is equivalent of a sales tax. I don’t get it how this can be double taxed as a sale as well as a service. Tomorrow they will say that you have to pay service tax on say elctronics, because apart from the sale they are also giving you some service.

    ….and with all the money that they collect, they build bridges to no where at cost with is twice than what US or other developed nations pay, even when the labor cost in India is 1/10th. Finally they pass most of the back money into their swiss bank accounts. Oh yes the bridges are actually paid for by the toll that we pay and will keep paying for generations.

    Even the relief that you are talking about in the article is for the developer and not the end coustomer. The developers are not going to pass that back especially in high demand markets like Mumbai.

    I support your movement Anna. I want my money to pay good salaries and benefits to the soldiers who defend our freedom and the cops that protect us. I don;t want the money to go to your swiss bank accounts.

  12. deepak says:

    I have withdrawn for the booking amount which i paid to the builder. the amount is rs.1,50,000/- . the builder is saying he will deduct the service tax proportionately.
    is this justified. plz clarify as i have not even purchased the flat.

  13. ramamurthy says:

    Charging 3.4% on the entire value, is it accepted? and if so, can please refer me the relevant tax circular?

  14. Shankar says:

    A builder in Bangalore is charging both VAT and service tax on a new property under construction, in installments along with the principal. I am wondering if the builder is liable to pay both VAT and ST to the government before registration or handover?

    I see that normally, the payments are collected from buyers only at the time of registration in most cases.

    Thanks.

  15. Sandeep says:

    Dear TaxGuru,

    Kindly guide on applicability of VAT and ST for under construction flat booking in Bangalore.

    Thanks,

  16. vivek says:

    DEAR TEAM,

    DO SERVICE TAX APPLICABLE ON UNDER CONSTRUCTION FLAT BOOKING AMOUNT(IN CHHATTISGARH) ??? HENCE TOTAL OF A FLAT COST IS LESS THAN 8 LAC.IF YES THEN WHAT WILL BE THE CALCULATION ??

    PLEASE REPLY

    REGARDS,

    VIVEK

  17. prabhakar says:

    Dear sir

    I am facing service problem. Ibooked flat sept’2009 Registration completed before june’2010. All dues paid. Possession is around Mar’11. The cost of the flat is Rs.1680860/-
    Builder insisting service tax. Shall I pay tax. Is there any rules for exemptions. pl. clarify

    Regards
    prabhakar
    9704111150

  18. D. Bandyopadhyay says:

    No service tax is payable on sale consideration that you had paid before 01.07.2010. If, however, the builder receives any amount from you after 01.07.2010 towards charges for DG Backup, Maintenance Charges and like that then you have to pay service tax on the consideration.

  19. Mangesh says:

    I have booked flat before July 2010 and also done the registration before July 2010. Will service tax will be levied to me.

  20. Yogesh says:

    dear tax guru team,

    please advice if service tax is still applicable as RNA builder has taken this from me and has advised that once court ruling comes we will get our money back if it is in our favour

  21. RMP says:

    When can the builder make a demand for the service tax payment? Is at the time of giving possession or at the time of making the final payment? or after the receipt of CC or OC?

    The present rate of service tax will be 10.3% of 33% property value or on 25% of the property value?

    can a builder demand higher service tax citing lower abetment?

    Does the buyer get any proof / receipt for the service tax payment (presently the money will be deposited in excrow account or in high court)

  22. Prashant says:

    Respected Sir,

    Please clarify about service tax & Vat on under contruction flat.
    I’m purchase flat on pune & contractor demaded service tax & vat on the flat value.
    I’m booked my flat on 1st June 2010.
    so please clarify about service tax & Vat is appicale? / not? and on which circular or GR No.

    Because the The Bombay High Court has granted an interim stay on service tax levied by the Union Government on buildings under construction. The interim stay was granted by Justice V C Daga and Justice S J Kathawala, who admitted a petition filed by Maharashtra Chamber of Housing Industry (MCHI).

  23. Lal mohan says:

    Sir ,Please help me with the belwo condition .
    Builder raise demand letter of my under contruction flate before July 10 , But due to some loan approval problem i made the payment after the july 1st with penalty as interest. Can some body help , whether it attract for service tax of not ?

  24. Mohan says:

    Builder raise demand letter of my under contruction flate before July 10 , But due to some loan approval problem i made the payment after the july 1st with penalty as interest. Can some body help , whether it attract for service tax of not ?

  25. shyam says:

    sir/madam
    i purchase a ready made flat in nov-2010 and occupancy date is aug-2010. Please advice that service tax is applicable or not if no please mention govt circular no and date

  26. Rakesh Kumar Verma says:

    Dear Sir,
    I have booked a flat in Noida with a reputed builder in December 2009 with a booking amount of Rs. 3,00,000. I paid second installment in June 2010 for an amount of around Rs. 9,76,56o. The builder had sent demand of Rs. 28,000 (approx. Pl tell me whether the service tax is applicable on the amount what we have paid priori to July 1, 2010. At what rate they are chargin the service tax.

    Regards

    Rakesh Kumar Verma
    Mumbai

  27. rampravesh says:

    i booked a flat in april 2010 and paid 10% amount before june 2010 and rest amount paid after 1st july . possesion will 2012 now builder demandig service tax which i was paid after 1st july its right or wrong pls suggest me what i have to do

  28. Sunil Talla says:

    Hi,

    I booked a flat on Sep 2009 for 21 lakhs and paid 8 lakhs to builder in the month of Feb 2010 and remaining full amount in the month of Sept 2010, now could you pls assist me how much is the service tax and VAT is applicable. please suggest

    Thanks,
    Sunil.

  29. asit kumar saha says:

    how service tax is calculated in case of construction company.

  30. George says:

    I am purchasing a ready to move in flat , whether the service tax will be applicable for the ready to move in flat.

  31. Rahul says:

    I have booked a flat in karnataka & aggrement is not yet done. Now the builder is asking for VAT & Service tax. Is it applicable, if yes how much percentage VAT & Service tax I have to pay. Pl. help.

  32. Umesh K. Shah says:

    Dear Sir,

    I booked my own Flat in Ahmedabad at February 2010 at that time i pay to builder for booking amount Rs. 51,000/- and in the month of April 2010 i pay to builder for 20% down payment after that every month Rs. 50000/- installment pay to the builder.

    Than in above case the Service Tax is applicable OR not.

    Please do the needful at the earliest.

    With regards

    Umesh K. Shah
    M.No. 98253 92523

  33. Nalin Parikh says:

    Shall service tax be applicable if duplex is booked by me in Sept. 2009, Registered Banakhat executed in June 2010 ; Sale deed likely to be executed in Dec. 2010 and possession likely in Jan. 2011.

  34. G Panicker says:

    I had purchased a flat (under construction) in 2006. The construction was completed in 2009. Service on the cost of the building has been charged by the builder. Kindly let me know whether the same is actually payable. Circular 108/02/2009 – ST of Dept. of Rev., Central Board of Excise & Customs says that it is not payable. Kindly advise.

  35. Swapnil Jaiswal says:

    Hello sprabhakaran,
    I booked my flat in August 2009 last year & agreement was done on 30th March, 2010 & saved 1% vat on agreement value. Now my loan is sanctioned from SBI on 24, June 2010 & first installment of 22 lacs will be disbursed nearby 12th July, 2010. I am confused whether I have to pay this hefty amount of ST, which is coming around 56,000. Can you please help me for my question?

  36. Arvind says:

    Hi
    I have booked flat on 20/04/10. 20 % payment done and waiting for Registration as builder is to get new permission for increasing floors from 20 to 30. am I liable to pay ST? am I required to pay ST on only 80 % of amount as 20 % is paid before 30th June10. am I required to pay ST on Parking & Development charges? builder is asking for all the ST amount I am not sure If I should pay or builder should share as theres delay from his side for permissions.

  37. prakash K says:

    i have booked the flat on 2/2/2010 at Rs 1450000.& down payment of Rs 350000. How much ST I have to pay, Pls confirm

  38. Arun says:

    Please help me immediatly, I have purchased a residential villa in Bangalore @ Rs 45 Lacs. My developer entered in to the split agreements and charged Rs 12 Lacs for the land and Rs 33 Lacs for the construction. Please tell me whether the service tax is applicable on full Rs 45 lacs including the land or only on Rs 33 lacs which is the payment towards the construction.

  39. Anurag says:

    hi CA Karun, Would have have any link or website info, from where we can get a clear picture of these provisions. I hav also booked a flat with possession due in mid 2013 and 20% payment done. Since you seems to be in practice, just thought u may have a reference/ document. Could not find anything on CBEC website.

  40. Jaishankar says:

    Dear Karun
    We have booked the flat during aug-2009. At most 90% payment was released to the builder. Now we have received the letter for service tax payment. The payment received up to Mar-2010 they have calculated 33% and the payments which has been received from Apr-2010 they have calculated 25%. After the revision in the calculation % from the government we feel that the entire calculation will be on 25%.
    Please advice on calculation of Service tax and whether the Service tax would be levied only for the payment which has been paid after 1 Apr 2010.
    Regards
    Jaishankar

  41. Karun says:

    Hi Ganeshan,

    Construction would be a taxable service only if the building or complex is still under construction and if any payment is made prior to the grant of completion certificate by the authority.

    In your case you are not required to give service tax on total cost.
    Service tax would be levied only on that part of the cost which has been paid after 1 Apr 2010 and prior to completion of construction @ 10.3% on 25% of the payment amount. Any payment made after completion of construction would not attract service tax.

    Regards,
    CA Karun Nagpal

  42. Ganesan Sundaram, Dubai says:

    Hi – I had paid the full cost of my apartment in Bangalore and I am waiting for the Registration. Now the builder says, if i want to do the registration, we need to pay the ST on the total cost of flat….Pls. clarify what should i do?

  43. sprabhakaran says:

    ST NEW NOTIFICATION IS PENDING.FLAT REGN HAS NOTHING TO DO WITH ST. ST IS PAID ON EVERY ADVANCE/STAGES OF PAYMENTS MADE. AFTER NOTIFICATION ST EFFECT WILL BE LESS.
    VAT ON FLATS PRESENTLY APPLICABLE ONLY ON SOME STATES.
    IF ENTIRE AMT IS PAID AFTER COMPLETION OF FLAT NO ST IS APPLICALBLE AS PER NEW PROVISIONS

    S.PRABHAKARAN

  44. Asa says:

    Hi,
    I booked my flat just 2 days ago. Still Reg. is not done. Confused regarding the effective date of ST.What if we register it before 1st june. Will it make any differance.What about 1% VAT. Will it be still applicable along with ST. PL. reply urgently.

  45. sprabhakaran says:

    TO ALL CONCERNED.
    FINANCE BILL HAS BEEN GIVEN PRESIDENT ACCENT, BUT SERVICE TAX NOTIFICATION YET TO COME ON NEW PROVISIONS OF ST.EXPECTED BY JUNE 1ST AND CLARIFICATION FROM UNION GOVT IS REQUIRED ON ST ON CONSTRUCTION AS THERE IS LOT OF CONFUSION PREVAILS ON THE LEVY OF SERVICES INCLUDED AS LAND VALUE CANNOT BE INCLUDED FOR ST

    S.PRABHAKARAN

  46. Prashant says:

    I heard from news that this service tax has been cancled by the GOV. Is it true? If anybody knows, ple comment.

  47. Prashant says:

    I heard form news that this service tax has been cancled by the GOV. Is it true? If anybody knows, ple comment.

  48. Vishal says:

    I have booked flat & full amount paid and document agreement already made dt. Dec 2009, Builder will be possession before 31-5-2010. so it is applicable for service tax.

  49. Ashweeni says:

    Please tell me from which date service tax applicable and what basis. If it is applicable from April 10 or July 10. So far nothing is clear on this service tax, as there are no relevant dates for applicability. I have booked a Flat Under Construction in Kalyan & will be getting possession by Dec 2010. I have paid Rs.27,00,000/- & stamp duty & Registration fee Rs.1,78,120/- already to builder before 31st March 2010. My flats total cost is Rs. 32,00,000/- excluding stamp duty & Registration fee. I have done my registration in the month of Oct’09. Whether Service Tax Implications will be applicable for me?

  50. Abbas says:

    So far nothing is clear on this service tax as there are no relevant dates for applicability.
    Pls tell us from which date service tax applicable and what basis.

  51. Milind says:

    Hello,
    Anybody knows about 1% VAT declared by Maharashtra govt.?

    Is it decided to apply from 1st April 2010?

  52. Abbas says:

    I booked flat in July2009 and registration done in July and I paid 75% amount paid and remian 20% of flat amount. Builder will be give possession before 15-6-2010. so it is applicable for service tax. please reply because i am confused.

  53. vinay says:

    I have booked flat & full amount paid and document agreement already made dt. 30-3-2010. Builder will be possession before 31-5-2010. so it is applicable for service tax. please reply because i am confused.

  54. Milind says:

    Hello,
    Thanks for explaining calculation.

    Actually, I have paid 1500000 already to builder before 31st March 2010.

    15,00,000 still to be paid.

    Could u tell me service tax amount please?

  55. sprabhakaran says:

    SERVICE TAX IS CALCULATED AS FOLLOWS:

    PAYMENT MADE SAY 100000-
    ST= 25% ON 1LAC= 25000/-
    NOW ST IS LEVIED @10.30% ON 25000/- IE 2575/–

  56. Milind says:

    Hello,
    Can somebody explain how calculation service tax @ 10.30% on 25% of payment is?

    I have booked property but possession is in December 2010.

  57. sprabhakaran says:

    ritu pls note:

    Once the finance bill is passed in parliament and gazette notification is issued any time then service tax levy new provisions will be effective immdly from the notification date.
    for all future payments made towards flat will be under st levy @ 10.30% on 25% of payments.

    S.Prabhakaran

  58. ritu says:

    HI,

    I am looking to take possession of my apartment in may 2010 as it is still under construction. Now will the new service tax be applicable when I register my apartment say in dec 2010.

    Please suggest.

  59. Partha Sarathi says:

    I have booked a Flat Under Construction on Bangalore & will be getting possession by Aug 2010,I have not done my Registration yet. Whether Service Tax Implications will be applicable for me also??When from is the new service tax applicable will come to play??

  60. Jagadish says:

    Is the new service tax is applicable for new bookings only or those who have already booked the flat & waiting for possession?

  61. Hitesh says:

    Me to want to know ? If it is applicable from April 10 or July 10..

    Please update information as soon as available..

  62. srs says:

    nothing clear as such on this as there are no relevant dates for applicability.

    on this earlier cbec issued circular no service tax appliacable for thwe builders…

    based on this, most of the indivdual people applied for refund of service tax, and the dept., still not responded..

    all these make fooling the donkeys
    whether tax guru will give correct factual data, and advise.

  63. Nirmal says:

    Is it applicable from April 2010 or July 2010?

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