IS MY REAL ESTATE INVESTMENT LIABLE TO SERVICE TAX

By CA Rahil Mehta

What is Service Tax

Service Tax is an Indirect Tax applicable on all services except those covered in negative list. So YES, it is also applicable on service portion of your Real Estate

Investments.

Applicability of Service Tax

If you book a property before it has received the certificate of completion (Building Use permission) from the competent authority then service tax is leviable. But if you invest in real estate where certificate of completion has already been issued then service tax is not applicable.

Point of Taxation

Service tax is required to be paid to the builder as and when the builder raises the invoice on you for such services.But it is the builder’s responsibility to deposit this service tax with the authorities.

Exemption from Service Tax

Exemptions from Service Tax:Construction of a Single Residential UnitConstruction of Low Cost Houses up to a carpet area of 60 sq. meters per house in a housing project approved by competent authority.

Computation of Service Tax Liability

At the time of sale of property, the amount paid by the purchaser to the Builder is for:-

Value of LandConstruction Service provided by the Builder/Developer

ST can be levied only on the Construction Service provided by the Builder/Developer.

Computation of Service Tax Liability (contd..)

The Service Tax on construction is levied at 12.36% on the total value of services i.e. on value of construction services. It is not levied on the value of land.But if the property value cannot be segregated as

Value of Land and Value of construction services

Then a flat rate of 3.71% is applied on the entire value. Whereas on residential property having carpet area of less than 2,000 square feet and the consideration value less than Rs. 1 crore, the rate of service tax is 3.09%.

ST Calculation & Payment

COMPUTATION OF SERVICE TAX ON UNDER CONSTRUCTIONPROPERTY

Particulars Abatement Allowed

Taxable Component

Normal Rate of Service Tax

Effective Rate of Service Tax

Residential property over 2000 sq. ft. 70% 30% 12.36% 3.708%

Sale price of Residential property over Rs. 1 crore. 70% 30% 12.36% 3.708%

In all other cases exceptspecifically exempted (as mentioned above)

75%

25%

12.36%

3.09%

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Thank you

DYNAMIC ACCOUNTANTS FOR A COMPETITIVE WORLD