Service Tax Applicability on Real Estates(Developers & 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 Facility like Park ,lift, parking space, community hall, common water supply
*Residential complex with 12 or less units will now also be covered .
Commercial Complex
It basically intend for use for commerce or 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
|
Charges |
Rate(Upto 31.03.2012) |
Rate(01.04.2012 to 30.06.2012) |
|
Basic Charges(BSP) |
2.575% |
3.09% |
|
Preferential Charges(PSP) |
10.3% |
12.36% |
|
Club Membership/Maintainence Charges |
10.3% |
12.36% |
|
IDC/EDC |
Nil,provided Development charges, to the extent they are paid to State Government or local bodies, will be would be excluded from the taxable value levy. |
Nil,provided Development charges, to the extent they are paid to State Government or local bodies, will be would be excluded from the taxable value levy. |
|
IFMS(Interest Free Maintainence Security)/IBMS |
Nil |
Nil |
|
Chrg for providng space for Car Parking |
Nil |
Nil |
|
One Time Power Backup Chg |
10.3% |
12.36% |
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 as naturally 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 provided the 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 exit from 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:
|
Cenvat Credit |
Input |
Input Service |
Capital Goods |
|
Construction Services |
No |
Yes |
Yes |
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 goods transferred 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:
|
S.No |
Descriptttion of Service |
Value in %age of total amount charged |
Net Service Tax liability in %age |
|
1 |
Original Work |
40% |
4.994% |
|
2 |
Maintenance and repair of goods |
70% |
8.652% |
|
3 |
Other Works contract including completion and finishing service |
60% |
7.416% |
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
|
Cenvat Credit |
Input |
Input Service |
Capital Goods |
|
Service included in portion of work contract |
No |
Yes |
Yes |
Reverse Charge(Applicable from 1.07.2012)
|
S.No |
Service Provider |
Service Receiver |
Service Tax Payable By |
|
1 |
Individual,HUF,Proprietary Firm,Partnership Firm,AOP |
Body Corporate registered as business entity |
Service Reciever-50%,Service Provider-50% |
|
2 |
Individual,HUF,Proprietary Firm, Partnership Firm |
Person other than Body Corporate registered as business entity |
Service Provider |
|
3 |
Company, Body Corporate Society,Trust,Association of Person, Body of individual |
Any Person |
Service Provider |
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 Whichever is earlier
Date of receipt of payment
For Service Recipient-Date of Payment
Mega Exemption (25/2012)
1) Under serial No.12 of the Mega Exemption Notification
Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -
(a) A civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
(c) A structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or
(f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;
2) Under serial No.13 of the Mega Exemption Notification
. Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-
(a) a road, bridge, tunnel, or terminal for road transportation for use by general public;
(b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;
(c) a building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public;
(d) a pollution control or effluent treatment plant, except located as a part of a factory; or
a structure meant for funeral, burial or cremation of deceased;
3) Under serial No.29 of the Mega Exemption Notification
Services by the following persons in respective capacities
Sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt;
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