Dear All,
I have been going through forums for a long time but havent been able to find a conclusive answer to my query so hopefully you guys can help me,
Builders are supposed to charge service tax for residential units being sold while under construction. The most common way used is to use "25%" abatement scheme (or "30%" in case of "luxury" units). But, is this the only way acceptable to compute service tax liability? What if I dont want to use this abatement scheme, then how am I supposed to charge service tax to my clients?
Can't I deduct the value of land (achieved by virtue of a sale deed or prescribed circle rates) from the total consideration and then charge service tax applicable for a Works Contract? (essentially the work of a builder is transfer of land, which isnt under service tax, and construction which is under service tax) For Example If value of Land is Rs 60 (derived from sale deed of the land), Value of Construction is Rs 40 and Profit is Rs 30, Cant I charge 40% (composition sceme for works contract) of 12.36% on Rs 70 (contruction value + profit) instead of 25% of 12.36% on Rs 130 ?
What happens in cases where the value of land is significantly higher than the construction value? For eg. Value of land in high end colonies of Metro cities could be say Rs 20000 a square foot and construction value be only Rs 3000 a square foot. Using a blunt method of 25% abatement would mean indirect taxation on transfer of land. In this example, service tax per square foot works out to be 3.09% of 23000 which is Rs 710 which is inordinately high because bulk of the value is coming from value of land.
Anyone has any idea for a better methodology?
Thanks
Maanick
CAclubindia
