Budget 2010 introduced service tax on construction of property by builders. What does it mean for you as a buyer? Would you have to pay Lakhs of rupees more? Find out what would be covered under this new provision.
Budget 2010 brought a rude shock to prospective home buyers. It stipulated that construction of house (in any form – apartment / flat / row house / etc) by a builder in a complex is a “service”, and introduced the service tax of 10.3% on such a service.
What does this mean to you as a home buyer? Would the builder pay the tax, or would you be paying this large sum as a buyer? If an apartment costs Rs. 30 Lakhs, does it mean you would have to pay Rs. 3.09 Lakhs more for it? What about the money paid for parking space? Would you pay tax even on that amount?
Let’s find out.
1. Service Tax on Under Construction Property
It should be noted that the service tax would be levied only on under construction property. A property is considered “under construction” till the builder receives a “completion certificate” from the relevant authorities.
Thus, if an amount for the purchase of a property is paid to the builder before he obtains a completion certificate, it would be subject to service tax. Only if the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no levy of the service tax.
Abatement allowed
But don’t get too shocked – you won’t pay service tax on the entire amount. 67% of the amount charged by the builder is considered to be cost of land, materials, etc. Only the remaining 33% amount is considered as “service” provided.
Therefore, you would pay 10.3% service tax only on 33% of the amount that you have paid. Thus, the effective rate of tax for you would be about 3.34% of the total amount paid by you.
What does it mean for you?
Most of us buy a house through a home loan. We book the house when the builder launches the scheme or when it is under construction, and make the payments based on the stage of the construction.
Effectively, it means that we make most of the payment before the builder gets the completion certificate! This means that the entire amount paid by us to the builder would be subject to service tax.
Who pays this tax?
It would be naive to assume that the builder would absorb this burden and pay the tax. Of course, the onus of paying this tax is on the builder. So, you would not have to go through the hassle of paying it.
However, ultimately this burden would be transferred to the home buyers in the form of higher price. Thus, its people like you and me who would end up paying this service tax.
Also, this tax would not be applicable to resale properties, as resale properties would essentially have obtained a completion certificate.
Applicable Date
This provision would be applicable from 1st April, 2010.
2. Service Tax on Preferential Location Services and Internal & External Development of Complexes
Service tax of 10.3% has also been levied on any payment made by you to the builder for getting a preferential location for your house / flat.
What does this cover?
- Any floor rise amount paid for getting an apartment on a higher floor
- Any amount paid to get an apartment / house with a specific number
- Any amount paid to get an apartment / house facing a specific amenity, say a swimming pool, lake, park, sea, etc
- Any amount paid to get an apartment / house facing a specific direction (maybe as per vaastu)
Also, the service tax has also been levied on any amount spent by the builder for the development of the complex – like building internal roads, paving the garden, etc.
No service tax on amount paid for parking garage
Many builders also sell parking space. It has been categorically mentioned in the budget that any amount paid for getting a parking slot allotted would not be subject to service tax.
Applicable Date
The date for the applicability of this provision would be notified later. However, in all likelihood, it would be effective from 1st April, 2010.
Illustration / Example
Let’s say you are buying an apartment of 1000 sq. feet for Rs. 3,000 per sq. ft. You are also paying a floor rise of Rs. 100 for getting the apartment on the 5th floor. You are also buying a parking space for your car for Rs. 2 Lakhs. Thus, you are paying a total of Rs. 33 Lakhs to the builder.
Let’s say you have paid the whole amount to the builder by the time the last slab of the apartment is constructed. Thus, you have paid the entire amount before the builder has obtained the completion certificate.
How much service tax would the builder recover from you?
- Rs. 2 Lakhs for parking space if not subject to service tax
- The amount of Rs. 1 Lakh (Rs. 100 per sq. ft. * 1000 sq. ft.) is subject to service tax. Thus, service tax is Rs. 10,300
- Out of the remaining Rs. 30 Lakhs paid for the house, Rs. 20,10,000 (or 67%) is treated as cost of land and materials, and therefore, does not attract any service tax
- There is a service tax of 10.3% on the remaining amount of Rs. 9,90,000. This service tax amount is Rs. 1,01,970
- Thus, the total service tax payable by you is Rs. 1,12,270 (Rs. 10,300 + Rs. 1,01,970)
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Hi!
Thanks for the article.
I booked a flat through a Vatika Ltd. last year in Apr. This is under contruciton. So far, I have paid 20% of the total cost of the flat.
On what amount i have to pay the service tax or by builder will take care of it.
Regards
Amit
I have booked a 2 bed room flat last year and I am given possession of the same in Dec,2011. The builder is insisting upon me to pay service tax @ 3.50% of the total cost of flat. The cost of the flat as I booked it last year was Rs.13,6000/-. Am I required to pay Service tax for Rs.13,6000/-? Please elucidate. The builder says that until and unless I pay the Service tax, I will not be allowed to occupy the flat. On hearing from you, I will take a decision on payment of the tax to the builder. The builder told me that he has already paid the service tax for the whole apartment consisting of 26 units. Howeer, he did not show us any receipt in that regard. If the amount is at all to be paid, should I insist upon receipt? Please send me a reply touchig the above vital points.
I have purachased a flat from Lucknow Developement Authority.Property allotted by LDA one years back but building is under construction.
Would I pay service tax on this property or it will be exemted due to goverment developper.
Kindly suggest.
Regards
Anurag Singh
I have booked the flat about five months before and paid about 25% of total cost, still the registration of property has not done. Do I need to pay the service tax? If yes who will pay the service tax, builder or me? What will be the effective date?
Sharad
Hi,
Thanks for the article.
My question is very similar to Avinash. So you or Avinash could you please throw some light if there is any update on the same?
Also is Completion certificate mandatory to be obtained by the builder irrespective of the registration done?
Hi,
Nice article.
Do we need to pay service tax even for flat purchased from the Land owner and not the builder. As you may be aware, land owner gets allotted some flats by the builder. The land owner can sell his share of flats. If we purchase from a land owner do we need to pay service tax?
Regards,
Raj
Your article is good but still we are not clear whther we have to pay tax or not. My scenario is : I have purchased a flat which is still under completetion and paid almost 70% amount , only property registration is pending. My question is ; If i had registred my flat before 1st April2010, do still i need to pay service tax(as per new budget) OR only those buyers need to pay service tax who has not registered their flat before 1 April 2010, after govt. notification.
Thanks in advance.
Pls reply asap.
Your article is good but still we are not clear whther we have to pay tax or not. My scenario is : I have purchased a flat which is still under completetion and paid almost 90-95% amount , only property registration is pending. My question is ; If i registred my flat before 1st April2010, do still i need to pay service tax(as per new budget) OR only those buyers need to pay service tax who has booked flat after govt. notification.
In all, do buysrs who have booked flat before govt notification, need to pay service tax?
Hi,
My details-
1. Property under construction, possession nov 2011.
2. I made the deal on 27th march 2010 and paid a token amount of 1 lakh.
3. However for the day of registration (26th May 2010), the builder asks me to bring 28,500 rupees in cash.
4. The builder says that this is the amount that he will need to pay as part of the service tax and says that he won’t be able to provide a receipt for that.
My question-
Is the builder required to pay a service tax on properties for which the deal was made before 1st April 2010?
If yes how is the service tax calculated for the property and I am supposed to give that amount?
Thanks
Sominya
It is a very helpful article. I liked the way you explained it.
Thanks.
If i registred my flat before 1st April2010, do still i need to pay service tax(as per new budget) . I paid 15 % of total cost (18.50 L) of flat.position will be in may,2010 last week.
My scenario is asmae as Avinash
I have purchased a flat which is still under completetion(95% completed) and paid almost 95% amount , only property registration is pending. My question is ; If i registred my flat before 1st April2010, do still i need to pay service tax(as per new budget) OR only those buyers need to pay service tax who has booked flat after govt. notification.
Regards
Vinod
I have purchased a flat under construction for an agreed amount of Rs.28.00 lacs including Rs.2.00 lacsfor parking. The undivided share of land was already registered in July 2009 in my name,and Ihave started paying the amount fromJune 2009 in stages of 30%,50%,15%, by way of loan. The flat is now completed and I am going to get the completion certificate within 31.03.2010 after paying the remaing balance amount of Rs.0.50 lacs. Kindly inform me whether I need to pay service tax? and if so under what rate? and the total service tax to be paid to the promoter.
Am booked flat in nov. 2009 but not done registered agreement yet. If i make registration after 31 Mar. then i have to pay service tax
There is no relevance with the date of BOOKING. The relevance is with date of PAYMENT of consideration. All the payment after teh date of enactment of this change would attract the Service TAx, irrespective of teh date of booking by the buyer. It has nothing to do with POSSESSION even.
I have booked a flat in Kolkata in April 2006, and taken home loan in August 2008. For disbursment from bank i have registered my sale deed (stamp duty @ 7% of the property value) in August 2008. The promoter is expecting that he will handover the flat by end of July 2010. Builder is telling that from June 2010 service tax ( 12.5 % of 25 % of property value) will be imposed if the registration is done after 1st June 2010. He is asking to do the property registration before June 2010. So whether it is possible to do registration before handover of the property and whether registration of the property means that lawful handover of the property is made ?? As there is interest clause also in the agreement that the builder will pay interest to the owner if the property handover is after December 2009.
I have purchased a house at kalyan on 28th june paid the token / booking amount, service tax is applicable to me also?
Hi,
We registered a flat in june 2009. The possesion date in the document is given as Dec 2009, but the construction has not been completed till date. The builder promises to give possesion by May 2010 and is demanding 1 % VAT and 3.34% service tax of the flat cost. Should we pay service tx and VAT charges?
I have booked flat at Mumbai in June ’2009 .The stamp duty and registration was done in July’2009 .
I am already making payments to the builder as per the demand letter .95 % of the payments are made and am set to get the possession by next month .ie June ’2010 .
The builder is demanding me the service tax amount before possession .
Appreciate , if anyone can let me know if service tax is applicable in my case.
Regards
Prashant Gawai
I have purchased a flat which is still under completion and paid 100% amount in 2007. Only property registration is pending now. My question is ; Do still i need to pay service tax(as per new budget) OR only those buyers need to pay service tax who has booked flat after govt. notification (1st April 2010).
In all, do buyers who have booked flat before govt notification, need to pay service tax?
Dear Sir,
I purchased a site in 2003 for 400000 rupees and sold it for 1450000 rupees in 2009. How much is the capital gain i need to pay? Also, if i invest the capital gain amount in new property, can i save this LTCG?
Thank you
If i register my booked flat before 1 st june 2010 will have to pay service tax.The construction work has not yet started ofthe building & 20% amount of booking is already paid to builder
Dear Sir,
My questin is same. As per original plan I was supposed to get possession in January. But it got dealyed by 5m onths and next months I may get possession.
So is there any provision for this in the bill ????
Hi,
I have booked a flat on april2010 and I ve paid 10% of the total amount, my registration will happen on July 2010.
So in my case ll I be charged for service tax?if yes on how much amount since I ve paid 10% already.
Thanx
Hi,
We have booked the flat during Dec 2009 and registered on Feb 15 2010. Now the builder is asking for Service tax as extra since he is yet to get the completion certificate. Are we liable to pay the service tax. Please clarify.
Thanks.
I have taken possesion of my flat on 30th june 2010 and paid all the amount, will service tax be applicable to me?
Your article is good but still we are not clear whther we have to pay tax or not. My scenario is : I have purchased a flat which is still under completetion and paid almost 90-95% amount , including the property registration in dec 2009. My question is ; If i registred my flat before 1st April2010, do still i need to pay service tax(as per new budget) OR only those buyers need to pay service tax who has booked flat after govt. notification.
In all, do buysrs who have booked flat before govt notification, need to pay service tax?
Thanks for the article. I have booked an under-construction flat in 2008 and was promised the completion of the project and possession by 2009. Due to various reasons, the project got delayed and have just received possession of my flat. As I have gone for a housing loan, the bank does not disburse the amount before the completion of the project, which is why the some amount was given to the builder after 1st April 2010.
My point is, why should a buyer who has no control on when a disbursement should be done , be taxed for no fault of his. As it is due to the delay from the builder, the buyer has to wait for his possession, spend more amount on house rent and now spend even more in the form of tax .Is there any clause which exempts the buyer from service tax in such a case?
sir,
you have given best articles,
regarding this ,i have done registration and mortgage in the month of april-10 also banker cheque have deposited only after completion cerficate.
now quetion is wether i have to pay service tax or not,kindly sugest me.
There is some misunderstanding on date of applicability. Is it April 2010 or July 2010?
One common question, every body is intested in is will the money paid before July 2010 be taxed for service or not? After July it is understandable…..but for a customer who pays early should have the benefit.
Dear Sir ,i have purchased a flat and have already done my 95% payment to the builder ….and has done the registration in may 2010….and my bank loan was cleared in July 2010….now builder is asking me to pay service tax on all the payments which has been done after 30th June 2010….so is he correct ….and if he is correct then whats the percentage of amount is to be paid …..your help in above matter will be highly appreciated.
I have purchesed flat in Feb 2010. Shold i have to pay vat and service tax. If yes how much will be both. Pl inform. We can get excape from this by anyway.
Why you want to escape from paying tax?
I have purchased a flat ( under Construction ) in mumbai and have done the registration and stamp duty paid on it. Now I have received a demand letter from the builder to pay Service Tax @ 10.3% ( 25% on Agreement Value ) Also will taking a home loan. Will Service Tax be applicable – pl advice thank you.
HI,I have booked a flat in virar(Mumbai) an have paid 20% on the flat cost and nee to pay more 1,00.000 do i need to give away the remaining amount before the registration.
I have booked a flat in this month and is almost ready to occupy in a gated community with club house and other amenities. Please suggest how to calculate service tax on this
Your article is good but still we are not clear whther we have to pay tax or not. My scenario is : I have purchased a flat which is still under completetion and paid almost 90-95% amount , only property registration is pending.
My question is -IF COST OF FLAT =20 LAKH & COST OF PARKING IS =2 LAKH , THEN HOW MUCH TAX I HAVE TO PAY?
In all, do buysrs who have booked flat need to pay service tax OR WE HAVE TO WAIT TILL THE BILL IS TO BE PASS?
i have purchased a rowhouse in lonavala with agreement value
of 18lacs ,therefore howmuch servicetax will i hv to pay as tax and at what rate,also want to know vat structure
Hello
I want how much extra cost pay for buing new HOME?
Its around 20 to 25% additional money on the basic sale price (including car parking charges)
I am planning to buy a property which is 80-90% complete. Do I need to pay the service tax for the entire amount.?
Builder will take all the installment before getting the possession certificate. So you will have to pay the service tax.
when service tax will be paid? (Against advance payment or Complitation of Construction of Flat)
our govt is one of the fucking govt who have passed this rule.
We have bunch of idiots in india as they are not aware that in both the ways builder is benefited because even if we pay he will not provided us the receipt and he will claim via tax and it will refunded to him.
who is the bastard who have passed this rule and also who is the fucking ass hole who have not replied even one question.
It seems you have been grown up in wrong environment. You parents have taught you lot of good words.
Hi,
I just need to ask, i have purchased two plots at the same place with same cost from a estate agency, they have given me one registry which has stamp paper of 3100 another registry of 1900 stamp paper in it. How come there’s difference? what should i do, shall i cross check or somebody making me fool…..
Dear Sir,
I have taken a laon from SBI bank in which my wife is coapplicant. Can I register the property only on the name of my wife? will I be able to avail the tax benefit in such case. The property is rewari (Haryana)and we stay at delhi.Pl reply at the earliest.-Major Sumit
Hello,
I have paid parking & MSEB charges to builder on 31st July’10. My builder has combined these two heads under development charges & asking me for service tax. Can you confirm if I really need to pay service tax?
Thanks,
Neeraj
Hi,
My builder is charging me 2.575 % as service tax. Does this service tax in any way help me in any kind of tax savings?
Thanks.
I have registered my flat on 31/12/2009, it was completed in dec 2010, but service tax rule lodged in budget 2010-2011, pleaes confirm, should i pay service tax on my flat, because i have taken my flat by loand from bank/relatives also.
I have booked flat at godrej hills, kalyan in Jan 2011, same under construction & likely to be possessed by June 2012.
i want to know that is service tax applicable for me ?
i received letter on 5th Oct-2011 from developer that Service tax & M-vat to pay.
At the time of developer had not to brought my notice as the this tax is in force since 2010.
Please advice….
Hi Kindly have a look 1st Oct DNA property page, Where in Service Tax officials Sunil Solanki,commissioner service Tax ,Mumbai 1,and Wilson Hangshing,commissioner service tax ,Mumbai 2, said that the court ruled that realty developers would not have to pay service tax,but they need to get their book assessed,
So only VAT needs to be paid to the builder
Hi,
I have booked a flat in Kolkata.
My flat cost including garage is around 23 lakhs.
Possibly, the CC has been issued in August 2011 month.
Now, immediate before the registration the developer/promoter has asked me to pay around 80,000 INR extra for the purpose of service tax which is according to him has been paid to the government for complete building.
I have a little doubt on whether this service tax is supposed to be paid by me or it is entirely by the developer/promoter.
Some sources say this tax has to be paid by the developer/promoter only and the customer or the buyer is not liable to pay this kind of service tax.
Please, let me know if I am suppose to pay this service tax to my promoter/developer.
Please, reply me. I am waiting for your response.
Thanks
Dayamay
I have registered my flat in Feb 2010. Should i have to pay service tax or not. Pl send answer in clarity at my email id.
Also pl send total detail of service tax
hi,
I had doen an agreement with builder for purchase of plot and construction of house on it in the year March 2009 for a cost of Rs. 1775000/-.
I had got the registry of land in my name in Feb 2010. Till the 1st July 2010 I had paid Rs. 842000/- to him. Pl ease clarify in view of Notification No. 36/2010 – Service Tax if i need to pay service tax?
G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services specified in clause (A) of section 76 of the Finance Act, 2010 (14 of 2010) other than services referred to in clause (zzc) and (zzzz) of sub-section (105) of section 65 of the Finance Act from so much of the service tax leviable thereon under section 66 of the Finance Act as is in excess of the service tax calculated on a value which is equivalent to the amount of advance payment received before the said appointed date.
Explanation.- For the purpose of this notification,
(i) “appointed date” means the 1st day of July, 2010;
(ii) “advance payment” means consideration received for the said taxable services to be provided.
Dear Respected Sir,
Can you please help me in providing your valuable inputs.
This is regarding the extra charges being imposed by the builder during registration.
I have purchased a FLAT and agreement was done in Jan 2010 with Possesion Date of Dec 2010.
My agreement says only to pay 49,11,500/ + (Flat Charges + Maintenance Charges) and 2,00,000/-( Registration+Stamp Duty+Legal Charges) . Now I am asking for registration of the flat and the builder is asking to pay extra Govt. Levies@ 6.5% of 49,11,500 (i.e 3,19,248/-) which is not a part of my agreement. Also he is charging me the late payment
charges of 2,06,628/- which is because disbursement got delayed from BANK. The builder did not send any
demand letter to the bank to disburse the amount and there was no progress in the construction.The disbursement was on date basis and not on SLAB completion. The builder planned the dates in agreement in such a way that he knew the Bank processing would delay in disbursing the payment and he is now charging me…Till date he didnt turned up
saying i need to do the late payment charges but now he is asking me.
My Agreement was done – Jan, 2010
Actual Flat Possession Date according to agreement is – Dec,2010 (But Still Not Given)
Current Situation – Not yet giving Possession Date and demanding more money
Amount Disbursed – All except 2 L for registration.
Answer my questions inline to my commments please…
Answer my questions inline to my commments please…
Please let me know
1. What are 6.5% charges? Builder says the 6.5% charges are Govt Levi charges it seems and this charges are separate from the Registration+Stamp Duty+Legal Charges. This figure is NOT at all there in my agreement
2. Do i need to pay VAT and Service Tax? as i did my agreement in Jan 2010? if so what is the Percentage?
3. Also should I pay delay charges as there is a delay from builder side as he is not giving possession till date? I have a clause saying builder will pay Rs. 5/sq feet if delayed after Dec 2010. But there isnt any End day mentioned in agreement till what time the delay would be and he hasnt payed anything to me till date.
4. How much time it would take me to get this legally resolved in karnataka? I heard there are lots of cases pending to be resolved?
5. He says you happily go to the consumer court there are 12 Lakhs cases pending and it will take years to solve this.
6. He also says that they have good contacts at builder level…My question is INDIA so corrutped..come on…please help me in getting the right solution..
7. I cant even concentrate in my personal life as this is the only
thig i have made in my life and i am not getting this.
8. Does builder has right to CANCEL agreement?
9. Should i go to Lokayukta?will Lokayutka help me OR Consumer Court Help me?
10. He is not Even responding to emails when i Asked about the 6.5% Govt levis charges, as he keeps quiet..
Please anyone can share me the mail id such that i can send my
documents and you can verify and provide me the suggestion…
Answer my questions inline to my commments please…
You can ask your builder to give you the challans / receipts of the 6.5% charges + other statutory payments as well. In case these charges are not genuine, the builder will try to avoid showing you the challans. However, in case these charges are genuine, you will have to pay this amount. Just take it as if the agreement was not comprehensive enough to accomodate all types of payments. When you ask for the challan / receipt, the builder might say that he makes a consolidated deposit (for all customers) of respective statutory levies with govt treasury. To this, you can ask them to show you the break-up of this consolidated amount. Pls note that it is mandatory to annex a customer-wise break-up along with each statutory deposit.
You can also request the builder to take you along with him to the govt office where these 6.5% need to be deposited.
You can also try contacting other residents of this appartment.
Take a call to escalate this issue to consumer court or lokayukta only after you are 100% sure that he is demanding some thing from you that is not genuine & appropriate.
i liked your artcile , but i need some more clarifcations, i had booked a flat and registered it in march 2010, there was a loan sanctioned on this flat , now the builder is charging service tax on every instalment which is getting due , i understand that the law came into effect from 1st July 2010.
am i obliged to pay this service tax.
dilip
am i suppose to pay the penalty for service tax on my new flat , if i skip the particular date which has been given by the builder?
I have purchased a flat on re-sale. However it is under construction. I will take the possession. I have agreed to pay an service tax and vat attracted. Will i have to pay taxes on the first agreement between the bulider and the 1st owner or on the 2nd agreement between the 1st owner and me.
The builder is demanding taxes on the 2nd agreement which is of higher value.
Please help
I purchased flat in pune & builder insisting me to pay service tax up to 2.54% of agreement cost.Is it legally true?Pl. send latest service tax rule about buildings.
I have purchase a flat at Thane – Ghodbunder Road. the property is under consturction. The sale and purchase aggreement was made and signed on 30th day of April’2011. The builder has charges me 1% Vat & 2.57% service Tax is it legally correct. Please update me on on current applicable Vat & service tax payble to builder.
sir i have purchased a flat in vizag for 20,00,000/- and i applied loan for 20,00,000/- registered for 13,00,000/- and the remaining amount getting from bank as additional aminities. Now the builder is insisting me to pay service tax for the total amount received from bank i.e., 18,00,000/- CAN U ADIVISE ME HOW MUCH AMOUNT I HAVE TO PAY SERVICE TAX