Vat+servicetax

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amit (Querist)
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03 October 2012 Hello

I have booked a flat in bangalore. The total amount of the flat comes 45.8(basic cost 40+ car parking - 2, other charges(elec,water etc) - 3.8)
Now builder is asking the vat+ service tax as follows
service tax - 4.8*total cost(45.8)
vat - 5*total cost

Is it correct? he told me that it is according to composit scheme. Also should he charge vat+st on elec+water charges..

Thanks
Amit

CA. Subhash Dangi

CA. Subhash Dangi (Expert)
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03 October 2012 Yes, your builder is correct in charging VAT and St on entire cost of Flat including Electricity and water charges since they are considered as taxable services in his bill or invoice.

CA Ayush Agarwal

CA Ayush Agarwal (Expert)
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03 October 2012 No, 4.8% is For Work Contracts .
rule states the following features for the valuation of the Works Contract service:-

Value of Works Contract = Gross amount charged – Value of transfer of property in goods. However, VAT or Sales Tax is not includible in the value of material supplied.
Value of Works contract service shall include the labour charges, amount paid to sub-contractor for labour and services, charges for planning, designing and architect’s fees, hire charges for machinery and tools, cost of consumables like water, electricity, fuel, etc., cost of establishment of contractor relatable to supply of labour and services, profit earned in relation to supply of labour and services.
In the cases where VAT has been paid on ACTUAL value of transfer of property in goods, then this value will considered while calculating the value of Works Contract.
If the VAT is not paid on the ACTUAL value, the assessee will calculate the same for the purpose for service tax and it will be deductible from the gross value. However, if the actual value is not ascertainable, then the following percentage will be the taxable value for the purpose of paying the service tax:-

Execution of original works **
40% of total amount*** charged for Works Contract. Where total amount includes the value of land, it will be 25% of total amount charged.

Other Works Contract including completion and finishing services like glazing, plastering, floor and wall tiling, installation of electrical fitting not covered above.
60% of total amount charged for Works contract.

**The original work means - all new constructions and all types of additions and alterations to abandoned or damaged structures on land required to make them workable;
*** Total amount includes the value of all goods and services – VAT - services supplied free of cost under the same contract or any other contract.

Where value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value closely available resemblance.

amit

amit (Querist)
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03 October 2012 Thanks for the replies.
But afaik service tax should be 3.09pc(12.25*25pc)*total cost.
And should I have to pay vat+st on full amount.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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03 August 2025 Great question! Let's break it down clearly:
1. Service Tax on Flat Purchase (Works Contract)
Service tax on works contract (like construction of flats) is not on the full value, but on the service portion only.
As per the rule, when land and building are sold separately, the service tax applies on 25% of the total value (excluding land value) for original works.
The service tax rate before GST was 12.36% (including cess).
So, effective tax on the 25% service portion = 12.36% × 25% = approx 3.09% of total cost.
If land value is included, service tax is charged only on the building/construction portion (typically 25% of total amount).
2. VAT on Flat Purchase
VAT is applicable on the sale of goods/materials supplied by the builder.
The builder charges VAT (usually around 5% in Karnataka) on the entire value of goods/materials used in construction.
VAT is not charged on land value.
VAT is generally charged on the basic cost + car parking + other charges related to materials (like electrical and water charges that are part of construction).
3. On Electricity & Water Charges
These charges are usually included in the VAT base because they form part of the taxable goods/services in construction.
For service tax, these may be included as consumables in the works contract service value.
4. Your Builder's Calculation
Service tax at 4.8% on total cost is incorrect if it's a flat purchase under works contract.
The correct service tax is approx 3.09% (25% of total cost × 12.36%) for original works contract.
VAT at 5% on total cost may be correct, but only on the value of goods/materials (excluding land).
Summary:
Tax Correct Calculation
Service Tax 12.36% on 25% of total value = ~3.09%
VAT 5% on value of goods/materials (excluding land)
Land Value No VAT, no Service Tax
What you can do:
Ask builder for break-up of land, materials & service portion clearly.
Verify service tax is charged on only 25% of total value (excluding land).
Check VAT is charged only on value of materials and other taxable goods.
If builder is charging 4.8% service tax on total cost, you can question and clarify the basis.

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