Service tax on other charges under construction of res.

This query is : Resolved

AMIT KUMAR (Querist)
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18 July 2013 we are engage in a project of housing society
and accordingly charge various component from client against the flat like
1)Basic charge
2)PLC
-Floor
-corner
-View
3)Car parking
4)Power backup
5)club membership
6)External development charges
7)lease Rent etc.
currently we are charging service tax on basic charge @3.09% and on remaining charges @12.36%(i.e without abatement)

whether this working is in a right way or not
if not then why????
tell me right treatment of all the charges form the point of service tax view.
thank you....

Sumit Grover

Sumit Grover (Expert)
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18 July 2013 1) Basic Charge---3.09%/3.708%

2) PLC
---if charged separately--12.36%
---if included in basic---3.09%/3.708%

3)Car Parking---3.09%/3.708%(bundled service)

4)Power Backup(towards cost of installation of DG & substations)-- 3.09%/3.708%

5) Club membership--12.36%

6)EDC--3.09%/3.708%

7) Lease rent-- 12.36%

The aforesaid rates are based on the practice followed in industry and as per the interpretations of various legal provisions.

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AMIT KUMAR

AMIT KUMAR (Querist)
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22 July 2013 IF WE ARE TAKING CANCELLED ANY FLAT ON WHICH SERVICE TAX HAS ALREADY PAID THEN HOW MUCH AMOUNT TO BE RETURN BACK TO CLIENT..
exp:
AMOUNT RECEIVED 300000
SERVICE TAX 8992
AMOUNT TOWARDS THE COST OF FLAT 291008

THEN AT THE TIME OF CANCELLATION OF FLAT HOW MUCH WE HAVE TO RETURN TO CLIENT

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Let's break down your queries one by one regarding **Service Tax on various charges in housing projects** and **cancellation refund with service tax implications**:

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### 1. **Service Tax treatment on various components of residential construction charges**

| **Component** | **Service Tax Rate / Treatment** | **Explanation** |
| ---------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- |
| **Basic Charge** | 3.09% (or 3.708% including Swachh Bharat Cess) | Applies with 70% abatement on construction service, hence lower effective rate. |
| **Preferential Location Charges (PLC)** | 12.36% if charged separately, else 3.09% if bundled with basic | If PLC is separately charged and is not part of construction, no abatement applies, so full rate. |
| **Car Parking** | 3.09% if bundled with flat price; 12.36% if charged separately | Parking bundled with flat is treated as part of construction service, else full service tax rate. |
| **Power Backup (DG installation, substation)** | 3.09% (if part of building) | Treated as part of original works (construction), hence abatement applies. |
| **Club Membership** | 12.36% | Club membership is a separate taxable service, full service tax rate applicable. |
| **External Development Charges (EDC)** | 3.09% (if part of development of residential complex) | Treated as part of construction service with abatement. |
| **Lease Rent** | 12.36% | Lease rent is considered a separate service; hence full rate applies. |

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### Summary:

* The **3.09%** rate corresponds to **14% service tax minus 70% abatement**, which applies to **original works contract services** (like construction of residential units).
* For components treated as **separate services** (e.g., club membership, lease rent), **full service tax @14% + cesses = approx. 12.36% (older rate)** applies without abatement.
* Bundling matters a lot: If extra charges are bundled with flat cost, abatement applies; if charged separately, no abatement.

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### 2. **On cancellation of flat where service tax has already been paid**

Example details:

* Amount received: Rs. 3,00,000
* Service tax paid: Rs. 8,992
* Amount towards cost of flat (excluding service tax): Rs. 2,91,008

**Question:** How much amount to be returned to client on cancellation?

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### Treatment:

* When flat is cancelled and amount refunded, the **refund should include the service tax portion paid**.
* You should refund the **full amount received (including service tax)** to the client if full refund is being given.
* If only partial refund is given, service tax refund portion should be proportional to the amount refunded.
* The service tax refund should be separately accounted for and not included in the cost of flat.

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### Summary for your example:

* Refund flat cost = Rs. 2,91,008
* Refund service tax = Rs. 8,992
* **Total refund = Rs. 3,00,000**

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### Additional notes:

* You may need to issue a **credit note** or **refund voucher** clearly showing the breakup.
* Maintain documentation for audit purposes.
* Consult with your tax advisor for filing appropriate reversal entries in your service tax returns.

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If you want, I can help draft the refund entry or provide sample accounting entries. Would you like that?

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