Servicetax rate on construction
This query is : Resolved
23 December 2010
There is circular about compounting rate of servicetax - no. 98/04.01.2008. please confirm what is the rate.further whicle registring we should go for project to project registration or keep reglar, since in regular if it is below 10 lacs we hav to pay if I ma not wrong once it is registered.
23 December 2010
Rate is 10.30%.
One of the restrictive conditions in the referred circular is excise duty paid on goods, subjected to levy of VAT / sales tax under works contract service, can not be taken as credit under the CENVAT Credit Rules, 2004.
One of the restrictive conditions in the referred circular is excise duty paid on goods, subjected to levy of VAT / sales tax under works contract service, can not be taken as credit under the CENVAT Credit Rules, 2004.
23 December 2010
Sir,
My point is that whether I can go for composite rate of 2%. Contract value is 1.5 Crore. or or I can go for abatement 25%/33% and second I shoul go only for single project or regular registration
My point is that whether I can go for composite rate of 2%. Contract value is 1.5 Crore. or or I can go for abatement 25%/33% and second I shoul go only for single project or regular registration
25 July 2025
Hi,
Your question touches on three key aspects related to Service Tax on construction/works contract as of 2010:
Eligibility for composite rate (2%) or abatement (25%/33%)
Implications of registration (regular vs. project-based)
Impact of turnover threshold (₹10 lakh)
Let's address each in order:
1️⃣ Composite Scheme vs. Abatement – Works Contract Service
As per Circular No. 98/1/2008-ST dated 04.01.2008, you had two options under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007:
✅ Option 1: Composite Scheme @ 2%
Applicable on gross contract value (including materials + services).
CENVAT credit not allowed on inputs (materials), but allowed on input services and capital goods.
Must be opted before payment of service tax on the contract.
Once chosen, applies to entire contract — no switching midway.
⚠️ Rate was 2% of total contract value, but it became 4% from 01.03.2008, and 4.8% later when ST rate became 12%. By 2010, the effective rate under composite scheme would likely be 4.12% (i.e., 4% + 3% cess).
✅ Option 2: Regular Scheme with Abatement
If not under composition, you could opt for:
33% abatement for construction services (residential complex, commercial construction) — taxable value becomes 67% of gross amount.
CENVAT not allowed on inputs if abatement is claimed.
Compare carefully:
If material cost is high → Composite scheme (4.12%) may be beneficial.
If labour/service portion is higher → Abatement may work better.
2️⃣ Service Tax Registration – Regular vs. Project-wise
📌 Regular Registration:
Suitable for ongoing or multiple projects.
Once registered, you’re liable to track all service income, even if below ₹10 lakh, and comply regularly.
Exemption limit (₹10 lakh) is available only once — and not after you start collecting Service Tax or take registration voluntarily.
📌 Project-wise Registration:
Practical for builders/developers who want to handle each project separately.
Helps in costing, accounting, and compliance segregation.
You may defer liability for new projects till threshold is crossed.
✅ Tip: If you expect to cross ₹10 lakh turnover soon or have ongoing projects, regular registration is better. But if you want to keep liability contained and start fresh per project, project-wise is smarter.
✅ Summary:
Item Details
Service Tax Rate (Composite) ~4.12% (under composition scheme as of 2010)
Abatement Option 67% abatement (tax on 33%) under normal scheme
Composite Credit Restriction No credit on inputs (materials), only on input services & capital goods
Registration Choice Project-wise allows flexibility; Regular registration better for ongoing ops
₹10L Exemption Available once, not after voluntary registration
✅ Recommendation:
Given:
Contract value = ₹1.5 crore
If material cost is high → Go with composite scheme
Opt for project-based registration if your operations are limited to specific projects — gives you control and simplifies tracking
Your question touches on three key aspects related to Service Tax on construction/works contract as of 2010:
Eligibility for composite rate (2%) or abatement (25%/33%)
Implications of registration (regular vs. project-based)
Impact of turnover threshold (₹10 lakh)
Let's address each in order:
1️⃣ Composite Scheme vs. Abatement – Works Contract Service
As per Circular No. 98/1/2008-ST dated 04.01.2008, you had two options under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007:
✅ Option 1: Composite Scheme @ 2%
Applicable on gross contract value (including materials + services).
CENVAT credit not allowed on inputs (materials), but allowed on input services and capital goods.
Must be opted before payment of service tax on the contract.
Once chosen, applies to entire contract — no switching midway.
⚠️ Rate was 2% of total contract value, but it became 4% from 01.03.2008, and 4.8% later when ST rate became 12%. By 2010, the effective rate under composite scheme would likely be 4.12% (i.e., 4% + 3% cess).
✅ Option 2: Regular Scheme with Abatement
If not under composition, you could opt for:
33% abatement for construction services (residential complex, commercial construction) — taxable value becomes 67% of gross amount.
CENVAT not allowed on inputs if abatement is claimed.
Compare carefully:
If material cost is high → Composite scheme (4.12%) may be beneficial.
If labour/service portion is higher → Abatement may work better.
2️⃣ Service Tax Registration – Regular vs. Project-wise
📌 Regular Registration:
Suitable for ongoing or multiple projects.
Once registered, you’re liable to track all service income, even if below ₹10 lakh, and comply regularly.
Exemption limit (₹10 lakh) is available only once — and not after you start collecting Service Tax or take registration voluntarily.
📌 Project-wise Registration:
Practical for builders/developers who want to handle each project separately.
Helps in costing, accounting, and compliance segregation.
You may defer liability for new projects till threshold is crossed.
✅ Tip: If you expect to cross ₹10 lakh turnover soon or have ongoing projects, regular registration is better. But if you want to keep liability contained and start fresh per project, project-wise is smarter.
✅ Summary:
Item Details
Service Tax Rate (Composite) ~4.12% (under composition scheme as of 2010)
Abatement Option 67% abatement (tax on 33%) under normal scheme
Composite Credit Restriction No credit on inputs (materials), only on input services & capital goods
Registration Choice Project-wise allows flexibility; Regular registration better for ongoing ops
₹10L Exemption Available once, not after voluntary registration
✅ Recommendation:
Given:
Contract value = ₹1.5 crore
If material cost is high → Go with composite scheme
Opt for project-based registration if your operations are limited to specific projects — gives you control and simplifies tracking
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