Vat & service tax payable when dual agreement is executed
This query is : Resolved
25 February 2016
Dear Expert,
I booked a flat in Bangalore in October 2013. A separate agreement for land value and a another agreement for construction was executed in October 2013. The land value (UDS) as per the agreement is Rs.25,58,000 & the construction cost as per the agreement is Rs.27,82,000.
Could you please let me know the VAT & the Service Tax applicable.
Regards, Arun.
I booked a flat in Bangalore in October 2013. A separate agreement for land value and a another agreement for construction was executed in October 2013. The land value (UDS) as per the agreement is Rs.25,58,000 & the construction cost as per the agreement is Rs.27,82,000.
Could you please let me know the VAT & the Service Tax applicable.
Regards, Arun.
25 February 2016
Yes, Vat and service tax both applicable on Flat purchase.
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25 February 2016
I agree to your point that VAT & Service Tax is applicable. The builder has derived the land value and executed a separate agreement for sale of land, in this case, is VAT & Service Tax applicable on land value as well?
25 February 2016
I agree to your point that VAT & Service Tax is applicable. The builder has derived the land value & executed a separate agreement for the sale of land (UDS portion), in this case, is VAT & Service Tax applicable on the land value as well?
03 August 2025
Great question! Here's a clear explanation regarding VAT and Service Tax on flat purchases with dual agreements (land + construction) in Bangalore (Karnataka):
Scenario Recap:
Two separate agreements:
Land Value (UDS) agreement — Rs. 25,58,000
Construction Cost agreement — Rs. 27,82,000
Tax Treatment:
1. VAT on Land (UDS) Portion:
Generally, sale of land is not subject to VAT as land is not a "goods" under VAT laws.
However, in some states like Karnataka, the sale of UDS (Undivided Share of Land) along with construction is considered part of works contract and attracts VAT.
If land sale is executed as a separate agreement, it is usually not subject to VAT (land is exempt).
But if land + construction are considered one composite transaction (works contract), VAT applies on the entire consideration including UDS.
Since you have a separate land agreement, VAT may not be applicable on the land value portion.
2. VAT on Construction Portion:
VAT applies on construction materials used in the building.
Builder is required to pay VAT on material consumption or under works contract VAT on construction cost.
For buyers, the VAT is typically included in the price; buyer does not pay VAT separately but may get a VAT invoice for the construction portion.
The applicable VAT rate depends on Karnataka VAT laws (usually around 5-5.5% on construction).
3. Service Tax on Construction:
Service Tax applies on construction services provided by builder.
As per the service tax law (before GST), service tax was levied on construction service at 4.5% (with applicable cess).
In the case of dual agreements, service tax is applicable only on construction value portion, not on land value.
The builder charges service tax on construction cost and issues a service tax invoice.
4. Service Tax on Land:
No service tax on land sale or UDS portion, as land is exempt from service tax.
Summary Table
Component VAT Applicability Service Tax Applicability
Land (UDS) Generally No VAT (exempt) if separate agreement No Service Tax
Construction Cost VAT applicable on materials or works contract Service Tax applicable on construction value
What you should check:
Verify if builder has issued separate invoices for land and construction.
Confirm VAT invoice on construction portion only.
Confirm service tax invoice on construction portion only.
Ensure no VAT/service tax charged on land value.
Final Note:
If builder bundles land and construction under one agreement, VAT & service tax applies on full amount as works contract.
Since you have dual agreement, land portion is exempt from VAT & Service Tax.
Scenario Recap:
Two separate agreements:
Land Value (UDS) agreement — Rs. 25,58,000
Construction Cost agreement — Rs. 27,82,000
Tax Treatment:
1. VAT on Land (UDS) Portion:
Generally, sale of land is not subject to VAT as land is not a "goods" under VAT laws.
However, in some states like Karnataka, the sale of UDS (Undivided Share of Land) along with construction is considered part of works contract and attracts VAT.
If land sale is executed as a separate agreement, it is usually not subject to VAT (land is exempt).
But if land + construction are considered one composite transaction (works contract), VAT applies on the entire consideration including UDS.
Since you have a separate land agreement, VAT may not be applicable on the land value portion.
2. VAT on Construction Portion:
VAT applies on construction materials used in the building.
Builder is required to pay VAT on material consumption or under works contract VAT on construction cost.
For buyers, the VAT is typically included in the price; buyer does not pay VAT separately but may get a VAT invoice for the construction portion.
The applicable VAT rate depends on Karnataka VAT laws (usually around 5-5.5% on construction).
3. Service Tax on Construction:
Service Tax applies on construction services provided by builder.
As per the service tax law (before GST), service tax was levied on construction service at 4.5% (with applicable cess).
In the case of dual agreements, service tax is applicable only on construction value portion, not on land value.
The builder charges service tax on construction cost and issues a service tax invoice.
4. Service Tax on Land:
No service tax on land sale or UDS portion, as land is exempt from service tax.
Summary Table
Component VAT Applicability Service Tax Applicability
Land (UDS) Generally No VAT (exempt) if separate agreement No Service Tax
Construction Cost VAT applicable on materials or works contract Service Tax applicable on construction value
What you should check:
Verify if builder has issued separate invoices for land and construction.
Confirm VAT invoice on construction portion only.
Confirm service tax invoice on construction portion only.
Ensure no VAT/service tax charged on land value.
Final Note:
If builder bundles land and construction under one agreement, VAT & service tax applies on full amount as works contract.
Since you have dual agreement, land portion is exempt from VAT & Service Tax.
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