Calculation of Service Tax and Vat on Under Construction Property
Ready to move in apartments are easy to purchase and involves fewer formalities as compared to under construction houses. Due to changing times and change in law and order, it’s necessary for the buyer to be aware of different taxes levied upon while buying the house. Though the reputed builders disclose most of the charges but some small unorganised builders may hide and keep the buyer in dark.
So let’s understand the different taxes levied upon while buying the house in detail:
Service tax
- Service tax is levied by central government upon the buyer for the services rendered by them from the developers.
- At present current rate of service tax in India is 15 percent.
- Service tax is applied on the construction component of the house while service tax is not applied to a bungalow, villa and single house it is also not applied on ready to move in an apartment as there is no service undertaken.
- Service tax is not applicable for low-cost housing which is up to 60sq. mt per house in the housing complex subject to the approval of concerned authorities.
- Since April 1, 2016, the government has standardised abatement for service of construction of complex, building, civil structure or a part thereof at a uniform 7o percent subject to fulfilment of other conditions.
- This now brings effective service tax on residential property to 4.5 percent.
- For another factor such as floor rise charges, preferred location charges and club house charges service tax is 15 percent while factor like parking charges are exempt from service tax.
- External development, infrastructure development and lease rent to an extent are paid to state government.
- Vat is levied upon movable properties where it involves the transfer of goods from one person to another but here vat is levied upon transfer of rights from developer to the buyer in the form of a sale agreement.
- Vat is not calculated upon ready to move into apartments.
- Vat is currently charged at one percent on ‘agreement value’ in Mumbai and Pune and varies from state to state. The tax is governed by ‘work contract’ in the VAT law.
- Vat is specifically mentioned in the sale agreement mentioning the party to bear the charges.
- Due to too much of confusion and calculation of different taxes government came with the new idea of GST which means goods and service tax which is at the standard rate.
- So the GST reform has brought lot positive change and relief as there will be no separate service tax or VAT levied on real estate transactions and GST will be levied upon fixed rate.
There are no specific rules as such who will bear the service tax and VAT but as per the court guidelines it has to be paid by the buyer and it’s the builder’s duty to deposit the taxes to the government. But it can also be a mutual agreement between buyer and the builder regarding who will pay it which could be further mentioned on the agreement papers.
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Comments
Ananthakrishnan Natarajan
2017-02-28 22:32:43At the time of signing sale and builder agreement do we have to pay any Service Tax to the Builder? The initial amount demanded 3,324,742 . We paid 200,000 token advance Builder requested us to deduct 1% DTS (33,247) and added Rs.2400 as Service Tax and show the pending payment 3,093,894 which we paid with in 2 weeks. Upon completion of Basement demanded 1,108,247 with 1% TDS deduction and asked us to pay 6% Service Tax?. Builder says:- Currently service tax is levied at 6% (40% of 15%) on builder agreement value and may change as per govt amendments from time to time especially for payments if any during July 2017 when GST is expected to be implemented. When I checked in WEB Service tax is ranging from 3/75% to 4.5%. Which is correct? Description Amount TDS S. TAX Received Balance At the time of signing agreement 3,324,742 33,247 2,400 200,000 3,093,894 Upon completion of Basement 1,108,247 11,082 66,495 1,163,660 Upon completion of 2nd Floor Slab 886,598 8,866 53,196 930,928 Upon completion of 4th Floor Slab 886,598 8,866 53,196 930,928 Upon completion of 6th Floor Slab 886,598 8,866 53,196 930,928 Upon completion of 8th Floor Slab 886,598 8,866 53,196 930,928 Upon completion of 10th Floor Slab 451,340 4,513 27,080 473,907 Need your advice. Building location is Vadapalani, Chennai, Tamil Nadu.
