All about Service Tax in Real Estate -Chennai

An interesting aritcle to read about Service Tax. While some Chennai based builders are collecting the same and some are not. There is always a confusion on buyers mind whether they should pay or not.

Read on and decide for yourself

Construction of residential complex was brought under service tax w.e.f.01.06.2005. Doubts have arisen regarding the applicability of service tax in a case where developer / builder/promoter enters into an agreement, with the ultimate owner for selling a dwelling unit in a residential complex at any stage of construction (or even prior to that) and who makes construction linked payment. The ‘Construction of Complex’ service has been defined under Section 65 (105)(zzzh) of the Finance Act as “any service provided or to be provided to any person, by any other person, in relation to construction of a complex”. The ‘Construction of Complex’ includes construction of a ‘new residential complex’. For this purpose, ‘residential complex’ means any complex of a building or buildings, having more than twelve residential units. A complex constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex intended for personal use as residence by such person has been excluded from the ambit of service tax.

2. A view has been expressed that once an agreement of sale is entered into with the buyer for a unit in a residential complex, he becomes the owner of the residential unit and subsequent activity of a builder for construction of residential unit is a service of ‘construction of residential complex’ to the customer and hence service tax would be applicable to it. A contrary view has been expressed arguing that where a buyer makes construction linked payment after entering into agreement to sell, the nature of transaction is not a service but that of a sale. Where a buyer enters into an agreement to get a fully constructed residential unit, the transaction of sale is completed only after complete construction of the residential unit. Till the completion of the construction activity, the property belongs to the builder or promoter and any service provided by him towards construction is in the nature of self service. It has also been argued that even if it is taken that service is provided to the customer, a single residential unit bought by the individual customer would not fall in the definition of ‘residential complex’ as defined for the purposes of levy of service tax and hence construction of it would not attract service tax.

3. The matter has been examined by the Board. Generally, the initial agreement between the promoters / builders / developers and the ultimate owner is in the nature of ‘agreement to sell’. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter / builder / developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of ‘residential complex’. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax.

4. All pending cases may be disposed of accordingly. Any decision by the Advance Ruling Authority in a specific case, which is contrary to the foregoing views, would have limited application to that case only. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned.

(Gautam Bhattacharya)
Commissioner (Service Tax)

CBEC, New Delh
http://www.servicetax.gov.in/st-cirmainpg.htm

4 Comments

  1. Suresh

    Any news about service tax? Any builder is paying back or not asking for service tax?

  2. Senthil

    My builder is asking for the service tax payment. Are we suppose to payment or is waived as per the financial bill 2010

  3. Venkat

    Looks like Service Tax is collected by the builder. Service tax is worked out at 12.33% of 1/3rd of construction cost.(This information I got from Cee Dee Yes). I have been asking my builder Ramaniyam for Service tax proofs for past 3 years, he did not have a clue as to how it is calculated in the first place. I have not received so much as a statement. I wonder if the service tax collected indeed is deposited to the government. Would anyone know how I can check this from the government side as the builder we feel will never give this statement.

  4. sakshi

    I would like to know the current service tax percentage and if we need to pay it at every stage of payment.

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