Service tax ,vat and tds on purchase of house
JAGANNATH RAO PARINAM
(Querist) 08 September 2013
This query is : Resolved
Dear Sir,
I am planning to purcahse one house( for personal residence) in a gated community from a builder.The proposed terms are as under:
1. First a sale deed for land will be made as per collector rates and land will be transferred to buyer for say Rs 30 lacs.
2 Then a Works contract - contruction agreement will be made by builder with the buyer for say Rs 45 lacs.
My queries are :
Whether Service tax is payable at 3.71% of works contract or not. I heard service Tax is not applicable if the house is constructed for personal residence.Even if
Service Tax is applicable ,has to be deposited by Builder with the Govt.
Is there any VAT involvement .
whether TDS U/S 194 - IA is to be paid ,since there will be two separate agreements for sale of land and contruction of house.
I appreciate your clarifications
pjrao
Ms.Nirmala P.Rao
(Expert) 10 September 2013
Dear Client,
You are exempted from paying Income Tax on the proposed house property for self occupation. However you are liable to pay Service Tax and Vat etc to builder as per the below given law on the subject.
In the budget for 2010 both Central and State Governments have made certain amendments to levy tax on sale of immovable property under construction to enhance their revenue and to overcome certain judicial pronouncements. An attempt is made to discuss the implications of the above amendments on the real estate transactions as to how the general public will be affected by way of additional cost on account of the above mentioned amendments.
SERVICE TAX
By the Finance Act, 2010 the Government has amended the definition of Commercial or Industrial Construction Service [Section 65 (25b) read with Section 65 (105) (zzq)] and construction of Residential Complex [Section 65 (30a) read with Section 65 (zzzh)].
The scope of these categories 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 amendment overrides the Gauhati High Court’s decision in the case of Magus Construction Private Limited v/s UOI [2008 11 STR 225].
Therefore, if a builder/developer receives the entire sale consideration for flats/units after issue of completion certificate, the same is not liable to service tax.
There is an abetement of 75% of the sale value. Thus, the tax will be levied on 25% of the sale value of flat at the rate of 10.3%. For example if the agreement value of a flat sold under construction is Rs. 50,00,000/- then service tax @ 10.3% is payable on Rs. 12,50,000/- which works out to 1,28,750/-. Thus, there will be an additional burden of 2.6% on the agreement value of flat. The amendment will be effective from the date to be notified by the Central Government.Since this is a residential property VAT also is payable.
- See more at: http://www.accommodationtimes.com/real-estate-news/recent-development-in-service-tax-and-vat-in-real-estate/#sthash.OJWFDlUq.dpuf
Ms.Nirmala P.Rao
Legal Expert
Hyderabad.
R.V.RAO
(Expert) 19 February 2014
Rate of serv.tax is @12.36%(incl 3% edu.cess) chargeable at present,if applicable as detailed below.
flats sold after obtaining completion certificate by the builder will not attract service tax.
the reason is there is only sale but no service .
sale attracts vat but not serv.tax.
if your builder has already obtained completion cert., and then after wards if sale deed is registered in your name by the builder, you need not pay serv.tax liability.you need to pay vat only.
but after your flat registration is completed ,then if the builder obtains completion cert. you attract serv.tax liability.
however there is silver lining for you vide serv.tax notification no 26/12 wef 01/7/12,where by there is an abatement of 75% on value liable for serv tax.in other words,yo are liable to pay serv.tax @12.36% on 25% of value of your sale deed price of the property(flat).
further since builders take input tax credit for capital goods etc..,a further 5% abatement is possible if all the affected persons like you/or you alone in your apartment complex can negotiate with builder.
an example is given below.
if the registered sale deed value of your flat is say Rs.30 lakhs ,you are liable to pay serv.tax( @12.36% on Rs6 lakhs ie20%of Rs30 lakhs. )of Rs 74160/- only.
i presumed you will convince your builder for an abatement of 80% of sale value and pay serv.tax only on 20% sale value@12.36% including edu.cess of 3%
Please not that :service tax abatement of 75%is provided by above serv.tax notification in respect of flats with carpet area of less than 2000 sq.ft and also of value of less than
Rs2 crores.
as regards sec 194IA,pl. CLARIFY if the property value as per your regd.sale agreement is Rs50 lakhs or above?
if yes then from june 2013,tds is applicable to be deducted by buyer/BUYER BANK from seller's payable amount evEn without TIN
