09 January 2014
Dear Sir, I have been assigned an audit of a Pvt Ltd company which is engaged in the business of construction and sale of residential flats. They pay service tax at 4.944% since construction companies have an abatement of 40%. The practice of the management is such that they pay tax only from the date of registration of UDS and not for the advances that has been received prior to registration. And once they get it registered, they pay service tax as under:
Total amount receivable xxx
(-) Land cost xxx
(-) UDS registration cost xxx
(-) Corpus Fund xxx
(-) VAT xxx
Net amount XXX * 12.36% * 40%
The reason given by the management is that they do not want to unnecessarily waste their money by paying service tax in case a person who has paid the advance money could not get it registered due to paucity of funds from his side, in which case he may get back the money that he had paid as advance for the flat. Whether this is correct or wrong pl let me know as soon as possible.
10 January 2014
the above working is not correct as land is sold by builder (he incurred cost) not registration cost(if borne by purchaser). the net amount is taxed at 12.36% and not 40% of 12.36%. In works contract you may not deduct land value. Works contract is not applicable in this case. Service tax is payable even on advance received. The developer should insist on registration as soon as booking is done to avoid cancellation.
10 January 2014
Both VAT and ST are applicable from the date of booking a flat and start paying advances.For both again land cost,registration cost and corpus fund are to be deducted before calculating tax.If under composition VAT @4% and ST@ 4.94% on the works cost. Under normal scheme full rates on 70% of works cost(after deducting the above amounts and labour @ 30% and for VAT and material @ 60% for ST) are to be charged.....mjk
13 January 2014
Mr.M J krishnamurthy, thanks for your advice sir. But in which context did you mean the word "Booking"? because my client pays service tax only from the date of getting their house registered and so do you mention here about the date of registration or the pre-booking advance that has been paid by them? Pl advice.
CAclubindia
