When Is Vat Payable On Under Construction Property?

When Is Vat Payable On Under Construction Property
How to calculate VAT and Service for Under Construction Flat – Honestly speaking its a Grey area and no one knows how it is getting calculated. Recently i visited few builders and checked with them and they are also not aware :). Simple answer i received was that VAT and Service Tax is Rs X.

One of them candidly told me that their finance team is calculating VAT and Service for under construction flat based on what is beneficial for him 🙂 Let me explain, There are 2 different methods of calculating VAT and Service Tax for under construction flat Method 1 If total project cost is apportioned flat wise then there are 3 cost components of any under construction flat.

These 3 cost heads are Land Cost (approx 35%), Material Cost (approx 40%) and Labour + Service Cost (approx 25%). Cost break up may vary from project to project but on an average cost break remains approximately the same as shared by me. You can get this break up from builder for an under construction flat though builders are reluctant to share.

  • Some exceptions are like High Land cost in cities like Mumbai and Delhi or High Material Cost due to transportation in upcoming cities.
  • VAT is applicable only on Material cost @ 14.5% and ST is applicable only on Labour & Services Cost @ 12.36%.
  • Please note that VAT may vary from state to state.
  • In this post i have taken VAT as applicable in state of Karnataka for reference.

Lets understand with an example: Assuming Person A bought an under construction flat with base cost of 50 lakh i.e. excluding amenities, club house charges, PLC, deposits etc. In this case, builder will apportion 50 lakh under 3 heads for under construction flat i.e.

  • Land Cost, Material cost and Labour + Service Cost.
  • The break up for under construction flat is as follows Land Cost: 15 Lakh Material Cost: 23 Lakh Labour + Service Cost: 12 Lakh Material Cost + Labour + Service Cost is collectively referred as Construction Value Now applicable VAT and Service Tax will be as follows for under construction flat in Karnataka VAT = 14.5% X Rs 23,00,000 = Rs 3,33,500 Service Tax = 12.36% X Rs 12,00,000 = Rs 1,48,320 Total VAT and Service Tax will be Rs 481820 Method 2: In 2nd method, instead of calculating head wise cost for under construction flat, VAT and Service Tax is calculated on Total contract value of the flat.

This value is amount mentioned in agreement value or registration value / value for stamp duty purpose, Whichever is higher. Let’s check how it is done VAT: In case of VAT, many states have launched composition scheme for real estate developers e.g. Haryana, Maharashtra etc.

  1. Under composition scheme, builders are free to pay VAT at X% on Total Contract Value.
  2. This X% is normally 1% (e.g.
  3. Haryana and Maharashtra) for most of the states.
  4. Service Tax: Similarly Service Tax under composition scheme is 3.09% of Total Contract Value for under construction flat.
  5. It basically means that service tax of 12.36% will be charged on 25% of total contract value, if the total contract value is less than 1 Cr or flats are below 2000 sq ft.

Therefore 25% of 12.36% is basically 3.09% of total contract value. In case under construction flat is costing 1 Cr and more or under construction flat is more than 2000 sq ft in area then service tax applicable is 3.71%. For such cases, Service tax is charged at 30% of total contract value.

  • Therefore 30% of 12.36% is 3.71% of total value.
  • Only condition is that agreement is signed after March, 2013 In continuation of our example, VAT in Karnataka is 5.5%.
  • For under construction flat costing less than 1 Cr in karnataka, VAT + ST = 8.59% of total cost (5.5% VAT + 3.09% ST).
  • For 50 lakh flat, VAT and Service Tax will be Rs 429500 Method 2 is financially more beneficial in our example but not always.

It depends on break up of cost. For states like Maharashtra, Haryana, AP etc where VAT is 1% under composition scheme Method 2 is financially more beneficial. Million Dollar Question: Who will pay the VAT and Service Tax? Unfortunately, NO one would like to bear this additional burden.

There is no specific guidelines on this. Buyers say that as per court ruling it has to be paid by the builder for under construction flat. Let me clarify, responsibility of builder is to deposit the VAT and Service Tax with govt. It doesn’t mean he has to deposit from own pocket. Therefore it all boils down to what is being mentioned in the agreement between builder and the buyer.

If you wish to avoid paying VAT and Service Tax kindly insist on mentioning the same in your agreement with the builder. Important Points: 1. Land cost is exempted from both VAT and Service Tax 2. Total contract value include value of land under composition scheme.

  1. Some builder exclude value of land citing it is exempted from VAT and Service Tax.
  2. Please note VAT and Service Tax under composition scheme include value of land i.e.
  3. It is part of Total Contract Value.3.
  4. VAT and Service Tax is not applicable on Ready to Occupy flats.
  5. You may postpone sale agreement to be signed after completion certificate is issued.

In short, if completion certificate is issued then VAT and Service Tax is not applicable for so called “under construction flat”.4. Builder will issue 2 separate payment receipts i.e. one each for VAT (with Tax Invoice no and TIN) and ST (with Tax Invoice No and ST registration no).5.

VAT & Service tax should be specifically mentioned in the sale agreement and which party will bear this cost 6. Service Tax is not applicable on single residential unit i.e. independent house, villa or bungalow 7. Service Tax is not applicable for low cost housing with carpet area of upto 60 sq. mt. per house in the housing complex but subject to approval from concerned authorities 8.

Service Tax on Amount paid towards Amenities, PLC etc will be 12.36%. Service tax on these cost heads will not be calculated under composition scheme and Service Tax of 12.36% will be payable on actuals. Hope you liked the post. Happy House Hunting !!! Copyright © Nitin Bhatia.

Are service tax and VAT applicable to under-construction property transactions?

How To Calculate Service Tax And VAT On Under-Construction Property Rakesh (name changed) has always dreamt of owning his own home. Now with a salary increment, he was closer to turning his dream into a reality. He shortlisted a few under-construction properties that met his budget of Rs 60 lakh.

  • However, as he readied himself to pay, he enquired about the actual cost of the apartment from the developer.
  • The cost sheet supplied to him included two additional charges – Value Added Tax (VAT) and Service Tax, which he was unaware about.
  • Are you also unaware about these additional charges as Rakesh? If your answer is yes, then you should know that at present Service Tax and VAT are applicable to all under-construction property transactions.

Their actual value varies from state to state, depending on where the property is being constructed. However,, Once GST is rolled out, these and other central and state indirect taxes will be subsumed and a consolidated indirect taxation regime will come into force.

  1. Note: An under-construction property can be divided into three parts, vis-à-vis its cost components.
  2. The first part is the cost of the land and calls for no VAT or service tax.
  3. The second part is the cost of material which is liable for VAT.
  4. The third part is the cost of construction and involves labour charges and can be treated as a service that is rendered by the developer to the purchaser.
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Therefore, service tax can be levied on this component. Let us learn more about these taxes and the calculation behind them. Service Tax Service Tax is levied by the Central government on the construction services offered by the developers to buyers. At present, the Service Tax rate in India is 15 per cent.

  1. The basic cost of the property that you pay includes the cost of land and construction.
  2. Service tax is applied only on the construction component.
  3. Earlier, the calculation of service tax was a bit complicated.
  4. The government levied “two rates of abatement for services of construction of complex, building, civil structure, or a part thereof”.

For a residential unit having a of less than 2,000 square feet and costing less than Rs 1 crore, there was a 75 per cent abatement. The abatement was 70 per cent of the amount charged for other units. Both were subject to fulfilment of certain conditions.

  1. However, with effect from April 1, 2016, the government (vide amendment to notification No.26/2012-ST), has standardised the abatement “for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions” at a uniform 70 per cent.
  2. This now brings the effective service tax on residential property to 4.5 per cent.

For other cost items, such as (PLC), Floor Rise Charges (FRC), initial and club houses, meanwhile, service tax is levied on the entire amount. In all these cases, service tax is a standard 15 per cent. External development charges and infrastructure development charges (EDC/IDC) and rent to the extent paid to the state government are excluded from the service tax liability.

  1. Parking charges are also exempt from the service tax net.
  2. Service tax is payable only on property purchase directly from developers and is not required in the case of resale property purchase, as there is no service provided.
  3. The service tax exemptions to be continued in GST include services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction/enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY).

Service tax is not applicable on the construction of a single residential unit such as an independent house, or bungalow. Moreover, there is no service tax on the affordable housing segment. Hence, it is not applicable for housing with a carpet area of up to 60 sq mts per house in the housing complex.

  • VAT VAT is levied on the sale of goods (movable properties).
  • For any sale to attract VAT, it should involve a transfer of goods from one person to another.
  • In the case of under-construction properties, it is the transfer of ownership rights from the developer to the buyer in the form of a sale agreement, in select states.

This tax is governed by the ‘works contract’ in the VAT law. For instance, VAT is charged at the rate of one per cent of ‘agreement value’ in and and five per cent in, but there is no VAT levied on apartments purchased in,, and, For more information on property in Noida,,

Who is liable to pay these taxes? Although it is the responsibility of the developer to deposit the VAT and service tax with the government, they often recover the cost from buyers. It ultimately depends on what the agreement between builder and the buyer provides. If you wish to avoid paying VAT and service tax, please ensure that the same is mentioned in your agreement with the builder.

The expected GST regime The Union government aims to roll out the Goods & Services Tax (GST) at a standard rate, which is yet to be finalised, across all states of the country. After the implementation of the new indirect tax regime, there will be no separate service tax or VAT levied on real estate transactions.

  • While these taxes were anyway not applicable on ready-to-move-in apartments or resale flats, GST will be charged at one fixed rate, instead of both service and VAT on under-construction properties.
  • From July 1, GST would be applicable on under-construction properties at the rate of 12 per cent but not on completed, ready-to-move-in apartments.

Real estate experts say that and property taxes may continue to be levied on immovable properties.

This post has been updated to incorporate changes in rules on applicability and abatement of service tax on construction services. Also Read: Also Read: With inputs from Sneha Sharon Mammen

: How To Calculate Service Tax And VAT On Under-Construction Property

What is the Value Added Tax (VAT) on property in India?

How To Calculate Service Tax And VAT On Under-Construction Property Rakesh (name changed) has always dreamt of owning his own home. Now with a salary increment, he was closer to turning his dream into a reality. He shortlisted a few under-construction properties that met his budget of Rs 60 lakh.

However, as he readied himself to pay, he enquired about the actual cost of the apartment from the developer. The cost sheet supplied to him included two additional charges – Value Added Tax (VAT) and Service Tax, which he was unaware about. Are you also unaware about these additional charges as Rakesh? If your answer is yes, then you should know that at present Service Tax and VAT are applicable to all under-construction property transactions.

Their actual value varies from state to state, depending on where the property is being constructed. However,, Once GST is rolled out, these and other central and state indirect taxes will be subsumed and a consolidated indirect taxation regime will come into force.

Note: An under-construction property can be divided into three parts, vis-à-vis its cost components. The first part is the cost of the land and calls for no VAT or service tax. The second part is the cost of material which is liable for VAT. The third part is the cost of construction and involves labour charges and can be treated as a service that is rendered by the developer to the purchaser.

Therefore, service tax can be levied on this component. Let us learn more about these taxes and the calculation behind them. Service Tax Service Tax is levied by the Central government on the construction services offered by the developers to buyers. At present, the Service Tax rate in India is 15 per cent.

The basic cost of the property that you pay includes the cost of land and construction. Service tax is applied only on the construction component. Earlier, the calculation of service tax was a bit complicated. The government levied “two rates of abatement for services of construction of complex, building, civil structure, or a part thereof”.

For a residential unit having a of less than 2,000 square feet and costing less than Rs 1 crore, there was a 75 per cent abatement. The abatement was 70 per cent of the amount charged for other units. Both were subject to fulfilment of certain conditions.

However, with effect from April 1, 2016, the government (vide amendment to notification No.26/2012-ST), has standardised the abatement “for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions” at a uniform 70 per cent. This now brings the effective service tax on residential property to 4.5 per cent.

For other cost items, such as (PLC), Floor Rise Charges (FRC), initial and club houses, meanwhile, service tax is levied on the entire amount. In all these cases, service tax is a standard 15 per cent. External development charges and infrastructure development charges (EDC/IDC) and rent to the extent paid to the state government are excluded from the service tax liability.

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Parking charges are also exempt from the service tax net. Service tax is payable only on property purchase directly from developers and is not required in the case of resale property purchase, as there is no service provided. The service tax exemptions to be continued in GST include services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction/enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY).

Service tax is not applicable on the construction of a single residential unit such as an independent house, or bungalow. Moreover, there is no service tax on the affordable housing segment. Hence, it is not applicable for housing with a carpet area of up to 60 sq mts per house in the housing complex.

  1. VAT VAT is levied on the sale of goods (movable properties).
  2. For any sale to attract VAT, it should involve a transfer of goods from one person to another.
  3. In the case of under-construction properties, it is the transfer of ownership rights from the developer to the buyer in the form of a sale agreement, in select states.

This tax is governed by the ‘works contract’ in the VAT law. For instance, VAT is charged at the rate of one per cent of ‘agreement value’ in and and five per cent in, but there is no VAT levied on apartments purchased in,, and, For more information on property in Noida,,

  • Who is liable to pay these taxes? Although it is the responsibility of the developer to deposit the VAT and service tax with the government, they often recover the cost from buyers.
  • It ultimately depends on what the agreement between builder and the buyer provides.
  • If you wish to avoid paying VAT and service tax, please ensure that the same is mentioned in your agreement with the builder.

The expected GST regime The Union government aims to roll out the Goods & Services Tax (GST) at a standard rate, which is yet to be finalised, across all states of the country. After the implementation of the new indirect tax regime, there will be no separate service tax or VAT levied on real estate transactions.

While these taxes were anyway not applicable on ready-to-move-in apartments or resale flats, GST will be charged at one fixed rate, instead of both service and VAT on under-construction properties. From July 1, GST would be applicable on under-construction properties at the rate of 12 per cent but not on completed, ready-to-move-in apartments.

Real estate experts say that and property taxes may continue to be levied on immovable properties.

This post has been updated to incorporate changes in rules on applicability and abatement of service tax on construction services. Also Read: Also Read: With inputs from Sneha Sharon Mammen

: How To Calculate Service Tax And VAT On Under-Construction Property

What is service tax on construction work?

How To Calculate Service Tax And VAT On Under-Construction Property Rakesh (name changed) has always dreamt of owning his own home. Now with a salary increment, he was closer to turning his dream into a reality. He shortlisted a few under-construction properties that met his budget of Rs 60 lakh.

However, as he readied himself to pay, he enquired about the actual cost of the apartment from the developer. The cost sheet supplied to him included two additional charges – Value Added Tax (VAT) and Service Tax, which he was unaware about. Are you also unaware about these additional charges as Rakesh? If your answer is yes, then you should know that at present Service Tax and VAT are applicable to all under-construction property transactions.

Their actual value varies from state to state, depending on where the property is being constructed. However,, Once GST is rolled out, these and other central and state indirect taxes will be subsumed and a consolidated indirect taxation regime will come into force.

  • Note: An under-construction property can be divided into three parts, vis-à-vis its cost components.
  • The first part is the cost of the land and calls for no VAT or service tax.
  • The second part is the cost of material which is liable for VAT.
  • The third part is the cost of construction and involves labour charges and can be treated as a service that is rendered by the developer to the purchaser.

Therefore, service tax can be levied on this component. Let us learn more about these taxes and the calculation behind them. Service Tax Service Tax is levied by the Central government on the construction services offered by the developers to buyers. At present, the Service Tax rate in India is 15 per cent.

The basic cost of the property that you pay includes the cost of land and construction. Service tax is applied only on the construction component. Earlier, the calculation of service tax was a bit complicated. The government levied “two rates of abatement for services of construction of complex, building, civil structure, or a part thereof”.

For a residential unit having a of less than 2,000 square feet and costing less than Rs 1 crore, there was a 75 per cent abatement. The abatement was 70 per cent of the amount charged for other units. Both were subject to fulfilment of certain conditions.

However, with effect from April 1, 2016, the government (vide amendment to notification No.26/2012-ST), has standardised the abatement “for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions” at a uniform 70 per cent. This now brings the effective service tax on residential property to 4.5 per cent.

For other cost items, such as (PLC), Floor Rise Charges (FRC), initial and club houses, meanwhile, service tax is levied on the entire amount. In all these cases, service tax is a standard 15 per cent. External development charges and infrastructure development charges (EDC/IDC) and rent to the extent paid to the state government are excluded from the service tax liability.

Parking charges are also exempt from the service tax net. Service tax is payable only on property purchase directly from developers and is not required in the case of resale property purchase, as there is no service provided. The service tax exemptions to be continued in GST include services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction/enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY).

Service tax is not applicable on the construction of a single residential unit such as an independent house, or bungalow. Moreover, there is no service tax on the affordable housing segment. Hence, it is not applicable for housing with a carpet area of up to 60 sq mts per house in the housing complex.

VAT VAT is levied on the sale of goods (movable properties). For any sale to attract VAT, it should involve a transfer of goods from one person to another. In the case of under-construction properties, it is the transfer of ownership rights from the developer to the buyer in the form of a sale agreement, in select states.

This tax is governed by the ‘works contract’ in the VAT law. For instance, VAT is charged at the rate of one per cent of ‘agreement value’ in and and five per cent in, but there is no VAT levied on apartments purchased in,, and, For more information on property in Noida,,

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Who is liable to pay these taxes? Although it is the responsibility of the developer to deposit the VAT and service tax with the government, they often recover the cost from buyers. It ultimately depends on what the agreement between builder and the buyer provides. If you wish to avoid paying VAT and service tax, please ensure that the same is mentioned in your agreement with the builder.

The expected GST regime The Union government aims to roll out the Goods & Services Tax (GST) at a standard rate, which is yet to be finalised, across all states of the country. After the implementation of the new indirect tax regime, there will be no separate service tax or VAT levied on real estate transactions.

While these taxes were anyway not applicable on ready-to-move-in apartments or resale flats, GST will be charged at one fixed rate, instead of both service and VAT on under-construction properties. From July 1, GST would be applicable on under-construction properties at the rate of 12 per cent but not on completed, ready-to-move-in apartments.

Real estate experts say that and property taxes may continue to be levied on immovable properties.

This post has been updated to incorporate changes in rules on applicability and abatement of service tax on construction services. Also Read: Also Read: With inputs from Sneha Sharon Mammen

: How To Calculate Service Tax And VAT On Under-Construction Property

How much is service tax on commercial property?

How To Calculate Service Tax And VAT On Under-Construction Property Rakesh (name changed) has always dreamt of owning his own home. Now with a salary increment, he was closer to turning his dream into a reality. He shortlisted a few under-construction properties that met his budget of Rs 60 lakh.

However, as he readied himself to pay, he enquired about the actual cost of the apartment from the developer. The cost sheet supplied to him included two additional charges – Value Added Tax (VAT) and Service Tax, which he was unaware about. Are you also unaware about these additional charges as Rakesh? If your answer is yes, then you should know that at present Service Tax and VAT are applicable to all under-construction property transactions.

Their actual value varies from state to state, depending on where the property is being constructed. However,, Once GST is rolled out, these and other central and state indirect taxes will be subsumed and a consolidated indirect taxation regime will come into force.

Note: An under-construction property can be divided into three parts, vis-à-vis its cost components. The first part is the cost of the land and calls for no VAT or service tax. The second part is the cost of material which is liable for VAT. The third part is the cost of construction and involves labour charges and can be treated as a service that is rendered by the developer to the purchaser.

Therefore, service tax can be levied on this component. Let us learn more about these taxes and the calculation behind them. Service Tax Service Tax is levied by the Central government on the construction services offered by the developers to buyers. At present, the Service Tax rate in India is 15 per cent.

  • The basic cost of the property that you pay includes the cost of land and construction.
  • Service tax is applied only on the construction component.
  • Earlier, the calculation of service tax was a bit complicated.
  • The government levied “two rates of abatement for services of construction of complex, building, civil structure, or a part thereof”.

For a residential unit having a of less than 2,000 square feet and costing less than Rs 1 crore, there was a 75 per cent abatement. The abatement was 70 per cent of the amount charged for other units. Both were subject to fulfilment of certain conditions.

However, with effect from April 1, 2016, the government (vide amendment to notification No.26/2012-ST), has standardised the abatement “for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions” at a uniform 70 per cent. This now brings the effective service tax on residential property to 4.5 per cent.

For other cost items, such as (PLC), Floor Rise Charges (FRC), initial and club houses, meanwhile, service tax is levied on the entire amount. In all these cases, service tax is a standard 15 per cent. External development charges and infrastructure development charges (EDC/IDC) and rent to the extent paid to the state government are excluded from the service tax liability.

  • Parking charges are also exempt from the service tax net.
  • Service tax is payable only on property purchase directly from developers and is not required in the case of resale property purchase, as there is no service provided.
  • The service tax exemptions to be continued in GST include services provided by way of pure labour contracts of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure or any other original works pertaining to the beneficiary-led individual house construction/enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY).

Service tax is not applicable on the construction of a single residential unit such as an independent house, or bungalow. Moreover, there is no service tax on the affordable housing segment. Hence, it is not applicable for housing with a carpet area of up to 60 sq mts per house in the housing complex.

VAT VAT is levied on the sale of goods (movable properties). For any sale to attract VAT, it should involve a transfer of goods from one person to another. In the case of under-construction properties, it is the transfer of ownership rights from the developer to the buyer in the form of a sale agreement, in select states.

This tax is governed by the ‘works contract’ in the VAT law. For instance, VAT is charged at the rate of one per cent of ‘agreement value’ in and and five per cent in, but there is no VAT levied on apartments purchased in,, and, For more information on property in Noida,,

Who is liable to pay these taxes? Although it is the responsibility of the developer to deposit the VAT and service tax with the government, they often recover the cost from buyers. It ultimately depends on what the agreement between builder and the buyer provides. If you wish to avoid paying VAT and service tax, please ensure that the same is mentioned in your agreement with the builder.

The expected GST regime The Union government aims to roll out the Goods & Services Tax (GST) at a standard rate, which is yet to be finalised, across all states of the country. After the implementation of the new indirect tax regime, there will be no separate service tax or VAT levied on real estate transactions.

While these taxes were anyway not applicable on ready-to-move-in apartments or resale flats, GST will be charged at one fixed rate, instead of both service and VAT on under-construction properties. From July 1, GST would be applicable on under-construction properties at the rate of 12 per cent but not on completed, ready-to-move-in apartments.

Real estate experts say that and property taxes may continue to be levied on immovable properties.

This post has been updated to incorporate changes in rules on applicability and abatement of service tax on construction services. Also Read: Also Read: With inputs from Sneha Sharon Mammen

: How To Calculate Service Tax And VAT On Under-Construction Property