Sunday , April 30 2017
Calculators

How to Calculate Service Tax on Under Construction Property

We often see the service tax figure on the demand letters sent by the builder on an under construction property (as shown in figure below). Many people are unaware of these taxes while negotiating prices of flats with the property owner. At that time all are interested to know only the per square feet rate only.  However these taxes are extra charges involve in buying an under construction property.  Please note that there is no service tax levied in buying/selling of ‘constructed property’. Therefore it is necessary to know and understand how to calculate service tax on under construction property. This will help in arranging required money for the property or deciding home loan amount while going for Home loan on the property.

At first have a look on the demand letters sent by builders where the service tax values are indicated. If you are able to see the service tax value and the ‘demanded amount’ and try to figure out the S.T % value then, you will notice that the service tax value is changing from previous dates to later dates. This is because the government has announced the rate change and the builder consequently asking S.T on those rates. This will increase the cost of home during the period of construction. Therefore it is important to understand the how service tax calculation goes for under construction property.

service tax

Who Collects Service Tax on Under Construction Property

Construction of residential building, complexes and civil structures are considered as declared services in India, these services are liable for service taxes. Service taxes are payable by the service provider to the Govt. of India, i.e Service tax is collected by central Govt. Service provider transfer the burden of these taxes on buyer’s head, therefore during each demand of payment they add the service charges with the demanded amount. Many buyers feel irritated to see the extra amount. But as per finance act of Govt. of India it is mandatory to pay the service tax. The rate of these taxes may changes as per the budget announcement every year. Therefore this part (taxes) of total Property cost is variable and may change during the payment schedule of your property.

service tax on property

Calculation of Service Tax with Effect 1st June 2016

Service tax is calculated on the total value of construction services provided by the service provider. For an under construction building it is considered that 30% of total property cost comes under construction services and 70 % is labour and material cost. In terms of tax law and current ruling it is said that 70% abatement is allowed on under construction property.

Now as on 1st June 2016, the rate of service tax is increased to 15%. Therefore the service tax is 15% of service cost of construction, and  70% abatement is allowed on under construction property, which implies service tax on construction is 15% of 30 % of total cost i.e 4.5% of the property cost.

For Example, suppose the demand on a particular schedule payment is Rs. 250000. The Service tax rate as per finance Act is 15% and the abatement allowed is  70% , then the service tax payable is 15 x 0.30=4.5% of the demand amount i.e Rs.11250.

The Govt. may change the service tax rate and the abatement allowed on under construction property as per the finance Act at that time. Earlier the service tax was 14%, then from 15th Nov 2015,Central Govt. decided to impose a Swach Bharat Cess (SBC)  of 0.5% on all taxable services in India. Therefore the service tax becomes 14.5%. Govt. also reduced the abatement allowed on under construction property from 75% to 70% from 1st April 2016. Therefore the construction services becomes 30% of total property cost. Later a Krishi Kalyan Cess of 0.5%  is imposed on the services with effect from 1st June 2016, which increased the service tax rate to 15%.

Service tax on under construction property before 15th Nov 2015= @3.5% [14% x 25%]

Service tax on under construction property after 15th Nov 2015= @3.625% [14.5% x 25%]

Service tax on under construction property after 1st April 2016= @4.35% [14.5% x 30%]

Service tax on under construction property after 1st June [email protected]% [15% x 30%]

Since for under construction property the payment schedule is agreed by the buyer and seller in the beginning itself, and the payments are made accordingly. Therefore the taxes are calculated for each payment as per the prevailing tax law at that time.

 

 

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19 comments

  1. AFAIK,

    1) If Agreement Value is below 1 Cr, Service tax = ( (25% of Agreement Value) * 15%)

    And

    2) If Agreement Value is above 1 Cr, Service tax = ( (30% of Agreement Value) * 15%)

    Kindly assist on the above because the builder is asking option (2) for the property agreement value below 1 Cr.

    • Dear Chirag

      As per current ruling the abatement allowed is 70% (earlier it was 75%) even if the agreement value is below 1 Cr. Therefore option 2 is valid.

      • Dear Sir,

        Could you please provide me Notification Number for changes in Abatement value i.e. 75% to 70% for all agreement value whether is more than or less than Rs 1 Cr
        Regards,
        Amit Mistry

  2. Sir I purchase duplex.Land value is Rs.648000 & construction Amount is Rs.2552000/- Total Amount is Rs.3200000. I want confirm service tax.please sir reply about service tax.

  3. Sir I purchase duplex Land value is Rs.648000 & construction amount is Rs.2552000 Total amount is Rs.3200000/- I want to knows about Service Tax.Sir pleased guide me.

  4. Hi Sir,

    I have purchased a under construction flat in Hyderabad, Telegana.
    Builder has taken the service Tax and VAT charges on the actual price(market value) of the flat, but the registration has done on 50% of actual price ie, registration is done on government value, and rest of the amount shown in the contruction agreement, and this is just mutual understanding between Vendee and Vendor.
    I would need your inputs, as I would like to ask the builder to return the Service Tax and VAT as the registration is done on govt. value but ST & VAT taken on Market value.
    I feel this is not fare. Can you please provide your comments on this?

    Thanks,
    Srikanth

  5. I have purchased a under construction duplex house in Hyderabad.I am planning to go for registration next month.
    Builder is charging the service Tax and VAT charges on the actual price of the house, but the registration will be done on government value, and rest of the amount shown in the construction agreement. I would like to know whether we need to pay Service as per government value i.e registration amount OR the market value
    Please provide your inputs on this.
    Regards
    Prakash

  6. Service tax on under construction property after 1st June [email protected]% [15% x 30%]
    how to Show SBC and KKC. have to divide Service Tax (14%x30%) (0.5%*30%) What is The accounting Code.

  7. I have bought a property with Base price of 6053890.00 of which booking amount was paid on 12-MAY-16.
    What should be the rate of Service tax that I should have been paying?
    Also, I read that recently Delhi High Court has said that there should be no service tax on property under construction (https://indiankanoon.org/doc/139269890/).

    Doesn’t this also gets applied here?

    Lastly, since I am also paying TDS on behalf of developer, should I be paying Service tax on TDS?

  8. My builder is charging service tax on following other charges @15% –
    1. External Development charges
    2. External Electrification charges
    3. FIRE FIGHTING CHARGES
    4. POWER BACK UP CHARGES
    5. CLUB MEMBERSHIP CHARGES
    6. PARKING SPACE (ONLY 1, NO ADDITIONAL OPTED BY ME)
    7. SPLIT AC AND ITS FITTING

    Kindly inform if it is ok. Further, pl also inform guidelines on service tax in case of PLC.

    • out of the above list leaving club membership charges, all others charges are connected with the construction of building so service tax would be levied if you have made payment to the builder before certificate of completion is received.
      For PLC Service tax is levied,as it is also clarified in the recent high court judgement of Delhi

  9. HARESH LALCHANDANI

    i purchased flat at the time of booking for value of 30/- lakhs i had paid half of the amount uptill now. i need to go for registration of my flat ,but now registration value or market value is 45 lakhs tell me the amount of service tax i have to pay ? on my value or market value? now the builder got oc.

  10. Dear sir, I am still waiting for a response

  11. I purchase flat for 30 Lakh and my agreement value 25.5 Lakh. at the time agreement I already paid service tax on agreement value( I made agreement in March16) now my possession in April 17 and builder is asking me again service tax which is increased after april 16 that I need pay or not please help me.

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