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.
Charging 3.4% on the entire value, is it accepted? and if so, can please refer me the relevant tax circular?
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.
Dear TaxGuru,
Kindly guide on applicability of VAT and ST for under construction flat booking in Bangalore.
Thanks,
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
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
I have booked flat before July 2010 and also done the registration before July 2010. Will service tax will be levied to me.
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
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)
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).
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 ?
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 ?
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
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
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
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.
how service tax is calculated in case of construction company.
I am purchasing a ready to move in flat , whether the service tax will be applicable for the ready to move in flat.
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.
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
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.
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.
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?
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.
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
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.
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.
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
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
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?
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
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.
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
I heard from news that this service tax has been cancled by the GOV. Is it true? If anybody knows, ple comment.
I heard form news that this service tax has been cancled by the GOV. Is it true? If anybody knows, ple comment.
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.
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?
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.
Hello,
Anybody knows about 1% VAT declared by Maharashtra govt.?
Is it decided to apply from 1st April 2010?
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.
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.
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?
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/–
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.
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
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.
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??
Is the new service tax is applicable for new bookings only or those who have already booked the flat & waiting for possession?
Me to want to know ? If it is applicable from April 10 or July 10..
Please update information as soon as available..
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.
Is it applicable from April 2010 or July 2010?