Is there exemption limit on service tax ?

This query is : Resolved

Harpreet (Querist)
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02 June 2012 Dear Sir / Mam,

I have bought a flat last month. The cost(BSP) of the flat is 30 Lacs.
I am yet to pay service tax of 3.09%.

Need advice. Is there any exemption limit on service tax.
I had heard that if the cost of house is 30 Lacs then service tax of 3.09% would be levied on only 25 Lacs. Upto 5 Lacs there is an exemption

Pl help me in this.

Regards,

Harpreet Ruprai

M-9724321071

Dayal

Dayal (Expert)
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03 June 2012 We cannot decide applicability or non applicability as this is determined at builders/ contractors end.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 Yes, there is a specific exemption related to service tax on the construction of residential properties. Under the service tax regime, certain exemptions and abatements apply, particularly concerning residential properties. Here’s a detailed breakdown relevant to your situation:

### **Service Tax on Construction of Residential Properties**

1. **Exemption Limit and Abatement:**
- **Abatement for Residential Property:** Under the service tax rules applicable to construction services, particularly for residential properties, an abatement of 75% was provided. This means that service tax was levied only on 25% of the total value of the service component involved in the construction.
- **Exemption for Value up to ₹5 Lakhs:** While the exemption limit of ₹5 Lakhs applied in the past, this specifically applied to the taxable value of the service for service tax purposes. It was part of the exemptions or abatements offered by the government.

2. **Effective Service Tax Calculation:**
- **Abatement Rate:** Given the abatement of 75%, the effective service tax is charged only on 25% of the total value.
- **Current Rate of Service Tax:** As of the latest applicable rates, the service tax on the construction of residential properties is generally at 3.09%, which includes the basic rate and cess.

### **How It Applies to Your Case:**

- **Cost of Flat:** ₹30 Lakhs
- **Abatement on Service Tax:** 75%
- **Taxable Value After Abatement:** 25% of ₹30 Lakhs = ₹7.5 Lakhs
- **Service Tax Rate:** 3.09%

So, the service tax would be calculated on ₹7.5 Lakhs at the rate of 3.09%.

**Service Tax Calculation:**
- **Taxable Amount:** ₹7.5 Lakhs
- **Service Tax at 3.09%:** ₹7,500 x 3.09% = ₹23,175

### **Exemption or Additional Clarifications:**

- **Exemption Limit of ₹5 Lakhs:** The ₹5 Lakhs exemption limit typically applied to earlier scenarios but the main relief is the 75% abatement on the value of the service for residential construction.

### **Recent Changes:**

- **GST Regime:** Note that service tax has been replaced by Goods and Services Tax (GST) since July 1, 2017. If you are purchasing a property now, it is likely subject to GST rather than service tax. The GST rate on the construction of residential properties is typically 1% or 5%, depending on whether it is affordable housing or other residential property.

### **Action Steps:**

- **Verify the Date:** Confirm whether the purchase and service tax are applicable under the pre-GST regime or if it falls under GST. If the transaction occurred after July 1, 2017, GST would be applicable.
- **Consult a Professional:** Given the nuances of tax laws and possible changes, it’s advisable to consult with a tax professional or legal expert to ensure accurate calculation and compliance.

In summary, under the service tax regime, the effective service tax is calculated after applying a 75% abatement. If this transaction is under GST, different rates and exemptions would apply.

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