Service Tax applicable on Flats

The State Government has levied a service tax of 4.5 per cent service tax on flats in new buildings bought after June 20, 2006. This is yet another cost, following the levy of VAT.

Even those buyers who entered into an agreement with developers in 2005 and got possession recently are also being asked to pay VAT.

The decision to levy the 4.5 per cent service tax saw the light of the day in 2005, though its implementation started recently as it had been challenged in the Supreme Court by Ahmedabad-based M/s Harekrishna Developers.

In April 2008, the Supreme Court ruled that the construction and sale of residential complexes would be liable for service tax. The sale agreements will be taxable under the category “Construction of Residential Complex” or “Works Contract Service”.

Under the category of “Construction of Residential Complex”, tax is payable at the rate 12.36 per cent on the entire agreement value or the contract price.

According to a notification issued on March 1, 2006, 67 per cent alleviation is provided towards material used in construction. Even after availing the concession the liability for the service tax would be at close to 4.5 per cent.