Service tax on builders

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Ameya (Querist)
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21 February 2016 If builders offer residential flats to land owners then they are required to pay ST as per notification 151/2/2012 dated 10.2.2012.But first agreement may take place even 6-8 months after the agreement with the landowner.Then in such cases what will be the remedy to avoid interest and penalty?

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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21 February 2016 Service tax on construction of residential apartments is payable by the builders on the amounts received from prospective apartment owners, till the Completion Certificate issued by the competent authorities is received. The buyer pays the builder along with Service Tax pro-rata along with payments made to him by the buyer. If the builder issues invoices, then the service tax is payable on issue of invoice and if no invoices are issued, it is on receipt of the consideration. The liability for payment of service tax arises once the builder starts RECEIVING payments against the proposed flats. If the builder has not received any sum from the flat-owners, but has only entered into an agreement with the land owner - there is no liability for payment of service tax. Such liability arises only once the stream of income starts from the flat-owners. The liability will occur once the flat-owners start paying the builder, and hence there is no liability on entering into an agreement with the land owner and paying him consideration for sale of land for building purposes.

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