Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: due date for vat payment :: Central Excise rule to resale the machines to a new company :: VAT Audit :: ACCOUNTING STANDARDS :: VAT RATES :: cpt :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4% :: list of goods taxed at 4% :: articles on VAT and GST in India :: form 3cd :: TDS :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: empanelment
 
 
« Service Tax »
 Credit Note And Debit Note Under Gst
 Demonetisation hits service tax, excise duty collection
 GST on a knife-edge as states act tough
 Parliament Winter Session: Govt keen on proper discussion on GST Bills
 Service Tax revision to make digital content expensive: Here’s how it will impact you
 GST Council may reduce tax slabs in future: CBEC chief
 Govt to waive service tax on card transactions up to Rs 2,000
 Recovery Of Tax Under Model Gst Law
 Income Tax officials hunt for Mumbai’s ‘ghost’ assessee
 GST delay to impact Budget
 If GST not rolled out by Sept, there won't be taxation in country, warns Jaitley

When can service tax and VAT be levied on purchase of property
July, 15th 2016

Service tax and VAT are applicable, only on properties that are booked at under-construction stages. So, both these taxes cannot be levied on properties that are purchased, after the builder has obtained its completion certificate. Similarly, there is no service tax or VAT for completed properties that are purchased under resale.

Applicability of service tax and VAT
An under-construction property can be divided into three parts, vis-à -vis its cost components. The first part is the cost of the land, on which neither VAT nor service tax is applicable. The second part is the cost of materials. According to the Supreme Court’s decision, in the case of Raheja Development Corporation vs the State of Karnataka, this can be deemed a part of the work contract and thus, is liable for VAT. The third part is the cost of construction, which largely involves labour charges and can be treated as a service that is rendered by the builder to the purchaser. Therefore, service tax can be levied on this component.

Basis of computation
As the entire value mentioned in the agreement cannot be treated as a work contract or services provided by the builder, therefore, VAT and service tax cannot be levied on the entire value of the agreement. If separate records are maintained, for material and labour charges, the tax at applicable rates can be paid. However, as it is not easy to maintain separate records, the rules provide for a rational basis to calculate these taxes.

The law allows you to opt for 25% of the value of the agreement as the service component, and pay the service tax on that portion. Hence, the levy of service tax effectively comes to 3.625% (i.e. 14.5% of 25%). This is applicable for contracts, with value of up to Rs 1 crore or where the carpet area of the property is not more than 2,000 sq ft. For properties, where the carpet area is more than 2,000 sq ft or the agreement value exceeds Rs 1 crore, service tax shall be applicable on 30% of the value of the agreement. Consequently, the applicable rate of service tax in such cases, will increase to 4.35% of the agreement value. In addition to the cost of construction, service tax is also applicable on the entire value of other services, such as the provision of the garage, premium for higher floors, etc.

Since VAT is a state subject, various states have their own laws for levying VAT. To overcome the difficulty in ascertaining the exact cost of materials in the agreement amount, states like Maharashtra provide for the payment of VAT on the entire value of the agreement, under a ‘composition scheme’. In Maharashtra, the rate of VAT under this composition scheme, is 1% of the total agreement value.

See also: Delhi HC’s ruling on no service tax: How it affects home buyers

Who is liable to pay these taxes?
Although it is the responsibility of the builder to deposit the VAT and service tax with the government, builders often recover the cost from buyers. It ultimately depends on what the agreement between builder and the buyer provides. If you wish to avoid paying VAT and service tax, please ensure that the same is mentioned in your agreement with the builder.

Exemption
Service tax is not applicable on the construction of a single residential unit – i.e. an independent house, villa or bungalow. Moreover, there is no service tax on the affordable housing segment. Hence, it is not applicable for housing with a carpet area of up to 60 sq metres per house in the housing complex. As the VAT depends on states’ laws, its application and exemption also vary from state to state.

Impact of a recent Delhi High Court judgement
The Delhi High Court, in a judgement delivered on June 3, 2016, held that the levy of service tax on construction contracts where land is also being transferred is not valid, in view of some technical infirmities in the law. The government is expected to move to the Supreme Court, as well as correct the legislative infirmity, so as to ensure that the service tax levy stays. As of now, the law as declared by the Delhi High Court, is that the builders cannot levy service tax on under-construction property with transfer of land.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
SEO Services SEO LLC e-boost Search Engine Optimization Services Internet Marketing Services Website Placement Services On-site Webs

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions