Service Tax Applicability on Real Estates(Developers and Contractors)

Service Tax:

All services are made taxable execpt:

1.       Negative List Based Services

2.       Mega Notification Based Service

3.       Abatments

Declared Services:

As an Activity carried out by a person for another for consideration and specified in section 66E of the Act

Clause (b) of Sec 66E states:

Construction of a complex,building ,civil structure or a part thereof ,including a complex or building intended for sale to a buyer,wholly or partly,except where the entire consideration is received after issuance of completion-Certificate by the competent authority.

·         Applicable to Both Residential as well as commercial Complex.

Residential Complex

As per notification no.25/2012 dated 17-03-2012, it means any complex comprising of a building or buildings,having more than one single residential unit. Usually It consists of:

1)Buildings

2)Common Area

3)Common Facilitylike Park ,lift, parking space, community hall, common water supply

*Residential Complex for Personal Purposes are also included , and residential complex with 12 or less units will now also be covered .

Commercial Complex

It basically intend for use for commerceor industry, But after 01-07-2012,the construction of building or civil structure used for any purpose including non commercial purpose is taxable service except when it is specifically exempt under notification 25/2012,dated 20.06.2012

·         Sale by builder to buyer is taxable ,except where entire sum is received after grant of completion certificate by the authorities competent to issue such certificate

Taxable Value:

The price charged by developer has following components:

1.       Basic Sales Price

2.       Preferential Location Charges

3.       EDC/IDC

4.       IFMS/IBMS

5.       Club Memebership

6.       Maintenance chrg and other chg

7.       Car Parking

8.       Interest on Late Payment

9.       One Time Power Backup Charges

From  1.07. 2010 to 30.06.2012 ,service tax applicability was as follows:

As per D.O.F. No.334/1/2010-TRU dated 26th February 2010

Further, any service provided by Resident Welfare Associations or Cooperative Group Housing Societies consisting of residents/owners as their members would not be taxable under this service.

               From 1st July 2012 ,service tax applicabilty is as follows:

The Contracting charges for development of complex ,society mantainence ,preferential location and other charges should be considered asnaturally bundled services, and be considered as single service known as construction services as all these charges are recovered by the developer along with sale of premises,except IDC/EDC chg to the extent they are paid to state government or local bodies

Assesse has 2 option for discharging Service Tax liability

·         Either to charge service tax @12.36% on the amount charged from buyer on services providedthe value of cost of land and stamp duty paid for registration charges has been excluded. OR

·         To avail abatement of 75% from the gross amount* charged to the buyer for determing value of taxable services, provided

1)Cenvat credit on input is not taken and

2)Value of land is included in the amount charged from the service receiver.

*Gross Amount –It should include total amount charged for the service including the fair market value of all the goods and services supplied by the recipient in or in relation to the service, whether or not supplied under the same contract or any other contract after deducting:

1)the amount charged for such goods or services supplied to the service provider if any,

2)The value added tax or sale tax if any

Provided: The fair market value of goods should be based on generally accounting principles.

Liability of Payment of Service Tax on advance:

Service Tax is payable when advance is received ,even if actual service is to be provided later.

Surrender of Booking by customer

If the customer chooses to exitfrom the project either before or after the issuance of completion certificate, then the builder would be entitle to take the credit under rule6(3) of the service tax rules,1994

Flats/Shops Provided free of cost to the landowner

Service tax would be payable by the developer on the identical or similar flat/shop or on basis of cost of construction plus reasonable profit.

Cenvat Credit:

Moreover as per New Definition under Rule 2(1) of cenvat credit rules ,2004,credit of service tax in respect of following entries can be availed and utilized only for paying service tax on such specified services:

-Service portion in execution of works contract and construction services (includes commercial or industrial construction service, maintenance or repair service.) Therefore the developer can utilize cenvat of this particular service against the construction services/ work contract output services only.

Under Reverse Charge the service receiver (the developer) is allowed full cenvat credit of the input service of work contract, which he has paid.

Provisions made applicable w.e.f. 01.03.2013

1. Change in rate of abatement

Earlier all the builders or developers engaged in Construction of a complex, building or civil structure or a part

thereof, intended for sale to a buyer, except where the entire consideration is received after issuance of

completion certificate by the competent Authority were entitle for the benefit of abatement of flat 75% from the

gross amount charged on fulfillment of certain conditions.

However, now a dual rate of abatement has been prescribed:

Particulars Rate of Abatement

a) Residential unit having carpet area upto 2000 square feet ;

or                                                                                                                        75%

b) where the amount charged is less than rupees one crore;

c) In all other cases 70%

Services Provided by Contractor

It comes under below mentioned service:

                            Service Portion covered under the work Contract* under Sec 66E(h)

*Work Contract is defined as a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, alteration, erection, commissioning, installation, completion, fiiting out, repair, maintainence renovation, alteration of any movable or immovable property or for carrying out any other similar activity or apart thereof  in relation to such property.

Determination of Value of Service Portion in execution of a works contract

Option1

=Gross Amount charged for the works contract - the value of property in goodstransferred in the execution of the said work contract, on which service tax @12.36% will be paid.

For this purpose Gross Amount should not include value added tax or sales tax, as the case may be, on transfer of property in goods involved in the execution of the said work contract.

*Actual Value of property in goods transferred in the execution of the work contract on which value added tax is payable or paid, should be taken as the Value in Property in goods transferred in the execution of the said works contract for determination of value of service portion in the execution of works contract under this clause

Value of Work Contract Service shall Include

·         Labour charges for exection of the works

·         Amount paid to a sub contractor for labour and services

·         Charges for planning, designing and architect fees

·         Charges for obtaining on hire or otherwise ,machinery and tools used for the exaction of the works contract

·         Cost of consumables such as water,electricity,fuel used in the execution of the work contract

·         Cost of establishment of the contractor relatable to supply of labour and services

·         Other similar expenses relatable to supply for labour and services and

·         Profit earned by the service provider relatable to supply of labour and services

Option2

Where such value is not determinable then:

Original Work means:

·         All new Constructions

·         All new Additions and alterations to be abandoned or damaged structures on land that are required to make them workable

·         Erection ,Commissioning or installation of plant and machinery or structures whether pre-fabricated or otherwise

Here Total Amount on which the service tax would be charged means

It should include total amount charged for the service including the fair market value of all the goods and services supplied by the recipient in or in relation to the service, whether or not supplied under the same contract or any other contract after deducting:

1) The amount charged for such goods or services supplied to the service provider if any,

2) The value added tax or sale tax if any

Cenvat Credit

Reverse Charge(Applicable from 1.07.2012)

As per Explanation-II to Notification 30/2012, dated 30/06/2012, in works contract services, where both service provider and service recipient is the persons liable to pay tax; the service recipient has the option of choosing the valuation method as per choice independent of valuation method adopted by the provider of service.

Point Of Taxation under Reverse Charge

For Service Provider- Invoice Date

                                         OR                                               &nb