Service tax on property

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

16 June 2012 I got the following information from internet:

By CA Sanjeev Singhal, FCA, DISA

1. Service tax payable by builders – Composition scheme of 25% available to builders done away with?: As per Rule 2A of Service Tax (Determination of Value) Rules, as amended on 17-3-2012 composition scheme of payment of tax @ 25% on value of works contract of construction available to builder, where the total amount charged includes value of land. This rule is amended on 6-6-2012, which is to be effective from 1-7-2012, and provision relating to tax @ 25% of gross value has been deleted. It will be a big blow to builders. Service tax payable on flats will go up considerably.

Does that mean that the builders have to charge 12.36% on entire sale agreement amount? New books relating to service tax law have not come into the market.

Dayal

Dayal (Expert)
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18 June 2012 If works contract

1.Original work
Rate of tax 12% of 40%
Effective rate = 4.8%

2.Works contract where value of land is included
Rate of Tax = 12% of 25%
Effective rate = 3.0%

3.Other works contracts including completion and finishing services –
Rate of Tax = 12% of 60%
Effective rate = 7.2%

The answere to your query is Sr. No 2.

There is no deletion as stated by the article which you have referred to.

The builder cannot charge service tax on that portion of the value which determines the goods.

rachit shah

rachit shah (Expert)
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18 June 2012 As per new Service Tax Determination of Value Rules,
(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;
Explanation 1.- For the purposes of this rule,-
(a) "original works" means-
(i) all new constructions;
(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
(iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

Considering above mentioned facts now the Builders would be taxed @ 4.95% of total receipt. I.e. 40% of total receipt would be taxed at 12.36%

This is applicable from 1-7-2012.