applicability of service tax on builder

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This query is : Resolved

CA Abhinay singh (Querist)

01 June 2010 shall there service tax be applicable if builder started construction before budget 2010 & also taken advance money from prospctive buyer before budget 2010.

Abhinay Singh

CA Ravi Kumar Murugesh

CA Ravi Kumar Murugesh (Expert)

01 June 2010 Service Tax on Under Construction Property:

The newly introduced service tax would be levied only on under construction property. A property is considered “under construction” till the builder receives a “completion certificate” from the relevant authorities.

Thus, if an amount for the purchase of a property is paid to the builder before he obtains a completion certificate, it would be subject to service tax. Only if the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no levy of the service tax.

Most of us buy a house through a home loan. We book the house when the builder launches the scheme or when it is under construction, and make the payments based on the stage of the construction.

Effectively, it means that we make most of the payment before the builder gets the completion certificate! This means that the entire amount paid by us to the builder would be subject to service tax.

We can assume that the builder would absorb this burden and pay the tax. Of course, the onus of paying this tax is on the builder.

However, ultimately this burden would be transferred to the home buyers in the form of higher price.

Also, this tax would not be applicable to resale properties, as resale properties would essentially have obtained a completion certificate.

Applicable Date

This provision would be applicable from 1st April, 2010.

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