Service tax for construction of flats

Originally posted by : sekar balakrishnan
	Dear freinds, I have a doubt for want of clarification. post your replies to my email ID "chith1954 @ gmail.com". The doubt is, Mr. A is residing in foreign country. He has got a land at India. He gives works contract to B, who residing in India. They entered an agreement to construct residential flats more than 12 in numbers. Mr. A IS paying the money to Mr. B for constructing the same. Work is not yet finished. about 3 flats were under finishing stage and in the first floor (totally 3 floors). A has received the advance amount from the persons who booked for the same. So the contrator B is doing services to A. Is it necessary to put bill on A by B  charging service tax . At what will be the % for the service tax.Then the srvice tax is to be calculated in the value of amount received by B from A or on the bill raised by B on A.Mr.B is going to charge 4.94% service tax on the purchaser and 1% TDS by the purchaser. Some immeidate response to me is very helpful.>>>>>B.SEKAR

Dear Sir 

If in a project consisting of multiple flats then ST liability shall be determined for each such unit individually.

Q1. So the contrator B is doing services to A. Is it necessary to put bill on A by B  charging service tax ?

Ans. There is works contract between Mr.A and Mr.B and service portion in the execution of a works contract is declared service under section 66E (h) of FA,1994. for valuation purpose from the angle of Contractor , Rule 2A of STVR,2006 shall be read.

Invoicing is subject to taxability on services. If the service provider is under exemption notification 33/2012 then no need to raise invoice. But Genarally most of the service provider in this industry are Non SSP. Therefore Invoicing is necessary within 30days(generally) from completion of each Event specified in the contract (i.e receipt of any payment(payment) of such event) towards the value of taxable services

Q.At what will be the % for the service tax.Then the srvice tax is to be calculated in the value of amount received by B from A or on the bill raised by B on A.

Ans. As per 66B of FA,1994 the rate is 12.36% incl EC and SHEC. As per rule 3 of POT Rules,2011 the point of taxation is the invoice date or advance for such event , whichever is earlier and on such amt effectively. The value for this work contract is preferably reffered from rule 2A of STVR. Generally in practice, the service portion involved in the works contract shall be 40% of the total amount charged for the works contract in your case. So accordingly, ST is equal to = Invoiced amt (assuming invoice is earlier then payment)*40%*12.36%.

Q.Mr.B is going to charge 4.94% service tax on the purchaser and 1% TDS by the purchaser. 

Ans. Effectively we can say that this comes to 4.944%.

TDS is seperate issue,which is to be deducted from whole payment.