Housing market depends upon the service tax levied on under construction property, especially in the recent times when real estate industry is going through a difficult phase in India. There are speculations rife about the possible impact of Budget 2013 on real estate in India and how the budget is going to impact the home buyers and developers. There has been a lot of expectations that the new union budget would turn the wheel of fortune for the real estate industry. However, the budget failed to bring in any significant cheers for the crisis laden realty in India as abatement scheme has been modified.
Let’s see the recent implications related to service tax on under construction property.
Let’s see the recent implications related to service tax on under construction property.
Service tax
Service tax is payable on services provided by the service provider. The service provider collects the tax from the consumer and deposits the same to the government. It is applicable to all the services except for those mentioned in the Negative List of services.
The current rate of service tax is 12%. Education cess and senior and higher education tax is calculated on top of the service tax rate and it makes effective the service tax stands at 12.36%.
Under construction property
A property is termed “under construction” till the builder receives a “completion certificate” from the relevant authorities. If the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no service tax levied on the purchase of the property.
Service tax on under construction property
Service tax is levied on the services provided by developers in case of projects offered for sales and when the payment is made before the issuance of completion certificate. The developers had protested against the issuance of any such service tax; however, court verdict went in favour of the government and now service tax is liable on purchase of property under construction.
It is the responsibility of the developer to collect service tax from the customer and deposit it to the government. However, due to imposition of service tax, the burden of increased property price has to be borne by the buyer.
Exemption from payment of service tax on construction
An exemption from payment of service tax on under construction property is allowed in case of the following cases:
Construction of single residential unit
Construction of low cost houses up to carpet area of 60 sq meter
Single residential unit is defined as a self contained residential unit designed to be used by one family only.
How to calculate service tax on under construction property ?
When you buy a house, you pay for two components:
Value of land
Construction offered by the developer (service provider)
Service tax is payable only in case of construction services and not on the value of land. In cases where it becomes difficult to ascertain cost of immovable property and service cost separately, government has come up with the provision of abatement scheme where an amount is levied on the total amount.
Abatement scheme
Earlier an abatement of 75% had been allowed by the government and service tax was levied on only 25% of the total purchase price (including value of land). Hence, service tax of 12.36% is levied on 25% of the total cost of purchasing an under construction property. It means that a service tax of 3.09% is levied on the total cost.
However, in budget 2013, abatement has been reduced from 75% to 70% in case of flats above 2000 sq ft in size and costing Rs 1 crore and above. It means that in case of flats seized above 2000 sq ft and costing above Rs 1 crore, service tax of 3.71% would be levied.
Source : www.commonfloor.com; http://zoomrealty.blogspot.in
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