Buying an under construction flat is most taxing for any buyer. In my post on Resale Flat or Under Construction Flat, Which is better? i discussed pros and cons of under construction flat. Builders attract buyers with attractive offers of Rs 2999* psf or Rs 3999* psf only. The “star” next to price point makes all the difference. A buyer is caught unaware of miscellaneous charges attached to under construction flat. Though with the time, things have changed and now reputed builders disclose most of the charges associated with under construction flat. Still small and unorganized builders which contribute max inventory keep customers in dark. Dream of owning a house is still a dream for many and in order to bring affordability factor, most of the additional charges are not disclosed to the end user. One such monster is VAT (Value Added Tax) and Service Tax levied on the under construction flats. For many of my clients this is the only souring point with the builder for under construction flat.
As per ruling of Honorable Supreme Court of India, the sale of under construction flat / property is liable to pay VAT. State Govt’s are quite happy with this decision as VAT helps to generate additional revenue because VAT is a state subject. Service Tax is paid to the central government. VAT and Service Tax increase the total cost of under construction flat. Let me clarify that VAT and Service Tax are not applicable for “Constructed Property”. It is only applicable for under construction flat. Secondly, VAT may vary from state to state as it is state subject but service tax is uniform across country i.e. 12.36% as it is fixed by Govt of India.
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. Under composition scheme, builders are free to pay VAT at X% on Total Contract Value. This X% is normally 1% (e.g. Haryana and Maharashtra) for most of the states.
Service Tax: Similarly Service Tax under composition scheme is 3.09% of Total Contract Value for under construction flat. 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. Some builder exclude value of land citing it is exempted from VAT and Service Tax. Please note VAT and Service Tax under composition scheme include value of land i.e. it is part of Total Contract Value.
3. VAT and Service Tax is not applicable on Ready to Occupy flats. 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. All Rights Reserved.
I am buying flat from land owner , Landowner said i don’t need to pay VAT and service tax as he is not showing it to government. The flat is under construction. What ever land owner is saying is correct ?
It is not correct. If he has been assigned flats under JDA then as i mentioned VAT and Service Tax are applicable on construction value for under construction property. As construction is happening in this case therefore VAT and Service Tax are applicable…You have not mentioned what he is not showing to govt.
One possible scenario is that for his flats, builder will bear the cost of VAT and Service Tax. You need to check Joint Development Agreement between land owner and the builder.
Thank you for your response, The JDA is not registered , He said both builder and landowner will be shown as party (seller) in the sale agreement as well as while flat registration and both people sign in all documents
I will not suggest to go ahead with this deal. Builder and Land Owners are bypassing many critical compliance’s.
Hi Sir, Owner himself re modifying the house property into flats and whether he has to collect vat and service tax from the buyer and what about stamp duty and capital gain tax to the owner
By re-modifying you mean basic structure exist and only modifications are done. VAT and ST is not applicable in this case.
Sir,
why the already constructed flat is free from service tax and VAT…????
VAT is applicable on Material cost and Service Tax is applicable on Labor + Service Cost. In already constructed property, both these costs are not applicable as construction is already completed. Therefore, VAT and ST are not applicable for already constructed flats.
Dear Nitin,
A new company recently started by me is constructing a small building having 4 apartments (for sale purposes). Each apartment is sized appr 50 mts carpet area.
Do my flats come under the purview of service tax.
Location of the project is in Bhayander , dist thane, Maharashtra.
Regrs
I don’t think so.
Can you find out ?
Sir, Can you find out for certain ?
I need to go through all the documents
Where can we meet ?
Would you like to meet with regards to this ?
Wd you like to meet with regards to this ?
I am based out of Bangalore.
I can call you.
Pl send me ur contacts on my email viz. vicpunj@gmail.com
I can call and we can take it forward. Pl send me your nos. My mail id is vicpunj@gmail.com
you can call me at +91 94800 21000.
Is VAT and Service tax not applicable for Banglows as well? I’m buying a banglow from a builder. The Banglow is already constructed.
The answer is subjective. If is constructed as a single residential unit then the service tax is not applicable.
In Bangalore I am planning to buy flat flat area is 1190 at 4300 psft and the builder is charging VAT 5 % on BASIC+ C P+ AMENITIES & ST 3.09% on BASIC+C P+AMENITIES
Break UP is like this
190*4300=51,17,000 basic
250000 = CP
150000= Amenities.
VAT 5 % = 2,68,350 (51,17,000+250000)* 5%
ST 3.09% = 170475 (51,17,000+250000+150000)*3.09%
BWSSB = 1,50,000
Sale agreement on guideline vale i.e (1190*3125+150000)= 38,68,750
construction agreement i.e ( total vale – sale agreement value) = 61,34,325 – 38,68,750 = 22,65,575
Is it builder is charging as per the norms or how it is ?
Show me how to calculate the VAT & ST for under construction flat,
Please clarify its very needful to me
Regards,
Naveen
9986738577
You may go through above post on VAT and ST calculations.
For any personalized consultation on chargeable basis, you can call me on +91 94800 21000.
Respected Sir,
I had already paid service tax BUT i am in confusion about VAT.
In Pune I had purchased 2bhk flat with details :
Booking Date : June 2010
Agreement Date : August 2010
Possession Date : October 2010, living in same flat from 12 OCt 2010.
Builder claiming got Completion Certficate in 2012 so have to pay VAT.
In my Agreement builder has clearly mentioned one clause that all taxes will be payable by buyer.
One possible point in my favour that for bank full disbursement in August 2010, builder given me certifcate about construction 90%.
Another possible point in my favour is Builder is not taking VAT from other resident who also registered flat in same month just because that person relative works as salesman with builder. Please guide if there is case for me in this or i have to pay ??
Based on information shared, in my opinion you are liable to pay VAT. It is at the discretion of builder whether he would like to collect from buyer or pay from own pocket.
In Naresh Yadav ‘s above situation will he have to pay VAT only on 10% remaining construction work or also on completed 90% work
Complete 100%
Can I get any tax exemption for Service Tax & VAT?
VAT and Service Tax are indirect taxes and tax you must be paying is direct tax. Not feasible.
I just to want to know whether builder pays the income tax in small projects(8-10) flats
It depends on state and policies of state govt. All central taxes like service tax has to be paid.
My builder is taking service tax in cheque but is asking for vat in cash. I am in MH so I have to pay 3.09% in cheque but 1% in cash. How should i ensure he has paid vat to state govt?
I suggest you to pay through cheque only and demand VAT payment receipt from builder.
Sir,
should SERVICE TAX & VAT be included in TOTAL FLAT cost for INCOME TAX PURPOSES ?
You have not mentioned specifically for which IT purpose.
I bought and registered a flat under construction in December 2012. I made a down payment. Builder is asking for 1% VAT on total agreement value. Builder has not made any progress on the property since it was registered in December 2012. What am I liable for? Thank you.
You need to check your agreement regarding the same i.e. Whether VAT will be paid by the buyer or not. Normally VAT and ST is paid by the buyer only.
I understand that VAT and ST has to be paid by the buyer but doesn’t the builder have to finish the flat before he demands VAT payment from the buyer? Does the Maharashtra state demand VAT payment from builder up front or when the project is concluded? Thank you for your time.
As i mentioned in my post that VAT is payable on Material Cost and ST on Labour and Service cost therefore it is payable during under construction period.
Sir, I bought an under construction flat and had it registered in March 2014 after paying total amount. Now I have the Sale Deed with me. Builder obtained the occupancy certificate for the building in November 2014. After an year after registration in March 2015, builder called me asking to pay service tax. As builder did not mention separately in the price, we assumed the price is including Service Tax. Is this legal for him to ask Service Tax after the flat is registered and that to after one year?
Please suggest. Thank you.
Now you are not liable to pay Service Tax. You may ignore his requests. There is no legal ground for this demand.
Sir, Thank you for the reply. Today I had a meeting with the builder and clearly said I am not going to pay the service tax as I am not liable and asked him to proceed legally if he has any concerns. Only things pending are electricity name and property tax name transfer. Now he is denying to sign the transfer form. Can you please suggest how can I have my name transfers.?
Thank you.
You don’t need his sign as such if the property is registered in your name. You can apply for electricity connection / property tax transfer based on sale deed.
Thank you so much Sir..
Hi Sir,
hi sir, I have purchased an under construction flat. The Sale deed is made for 220000 + work order of 375000. In that total amount i paid
775000 by cheque. And the rest of amount is by loan. Builder asked me to pay both service tax and vat for 22 lacs before registration.
So i paid it and registration has done. Now he is asking me to pay ST and VAT on rest of the amount 335000.Really do we have to pay both ST and VAT
on the amount which we have paid to him. And he told me that VAT amount should be given in cash only. please clarify my doubts.
Thank you.
To answer this query, I need to check your agreement and cost break up sheet. VAT cannot be paid through Cash.
Hi Sir,
I am interested in one flat, For which builder has still not obtained CC and OC certificates. Flat is ready to occupy, and already more than 40 Residents are living there.
I have two questions,
1.) Should I go for the flat as builder has not obtained OC and CC? Although, builder says he’ll get me a A-Khata certificate for the flat. Is it a good deal?
2.) Builder is asking for VAT and Service Tax for ready to move in Property, Can I negotiate on that?
Thanks in advance for your valuable suggestion.
-Sudeep
1. As i have not seen your documents therefore cannot comment but if it ready to occupy then OC or CC should be in place.
2. You can negotiate but builders delay obtaining OC and CC so that they can charge VAT and ST from buyers.
Hi,
Please let me know the Vat position in west bengal on residential properties . Is it applicable or exempted. Since i enquired from two buiders both denied paying any tax.
VAT is builders responsibility. You need not to worry.
Dear Sir,
I have purchased a flat in bangalore at a total cost of Rs 41.84 lacs. The sale & cosntruction agreement was made on Jan 15 th 2015 and the builder is yet to handover the flat. The property was registered on 6th March 2015. While making the agreement, the sale agreeement was made at 27.48 lacs and the balance of Rs 14,36,000/- was made as construction agreement. The registration was done on 27.48 lacs only. As on the date of the agreement, the building was under construction and 70% of the construction was completed. Neither in the agreement or in the sale deed, the VAT & Service tax element is not mentioned. Now, the builder has started asking me to pay VAT & Service tax. I need the following clarifications.
1. Since the same is not mentioned in any of the documents, does the builder have the legal right to demand the payment?
2. Since the registered amount is Rs 27.48 lacs, does the liability of VAT & Service tax accrue on the registered amount?
3. Is it possible that the VAT & ST can be calculated on the construction agreement value of Rs 14.36 lacs which is not featuring in the sale deed?
4. In case if the builder has opted for composition tax as a part of the works contract, and the service tax on labour portion, can the builder demand the VAT @ 5.5% and Service Tax @ 12.36%. If not, how the composition tax can be recovered from the buyers from the builder?
I will be grateful to you, if you can answer my query’s and I look forward for your earliest feedback.
1. No
2. No. Please check my post, how it is calculated
3. Please go through the post
4. I need to check your documents and payment details.
Dear Mr.Bhatia,
Thanks for your prompt reply. As suggested by you, I would like to share the documents and payment details, so that, i can have a firm opinion about the applicability of taxes. Also, kindly confirm to me about your professional fees and mode of payment. Please send me your email ID. I look forward for your earliest reply.
You can call me at +91 94800 21000 or mail me at info@nitinbhatia.in
I am buying an under construction flat (70% over) in Bangalore. Its basic cost is 37L plus they are charging 1.8L for car parking and 1.7L for BESCOM/others. They are charging 5.5% as VAT (on basic price and car parking) and 4.95% as ST (on basic price, car parking and amenities charge) . Kindly guide me whether they are charging correctly.
Please go through my post, i have explained in detail. As the calculations are case specific and i have not seen your documents therefore cannot comment whether charging is correct or not.
Yeah, i have gone through your post. As you have mentioned the builder can’t charge more than 25% of ST (currently 14%), if the flat price is less than 1Cr/2000sqft. Kindly guide me if they are charging wrong. Another thing as you have said you need to see the docs, where exactly i need to see the things ST related.
You may clarify from builder i.e. how he is calculating the ST. You can find details about ST on Ministry of Finance website.
Hi, I am planning to buy under construction flat in Pune. I want more information about VAT and service tax, Are these taxes based on gov decided ready reckoner rate?
Please go through my post on this page.
Dear Bhatia sir,
1) i am from karnataka, Flat sale agreement did on 24/04/2015 i paid 10Lakh + 5Lakh total 15 lakhs through 2 cheques
2) i am purchasing from person who is brother of land-lard / land looser and lard-lard did gift deed to her own brother from whom i am buying,
3) vat & service tax not mentioned in sale agreement,
4) but in agreement mentioned will get registered within 3 months from date of agreement, for registration vendor should provide khata (he applied) along with completion certificate he has to collect from builder, he agreed.
5) total property 27,50,000 lakhs so i have to pay remain at time of registration 125000
6) but someone told me that if property value less then 50 Lakhs or if not buying from builder then no need to pay VAt & ST, is that true?
Sorry i could not understand your query completely. VAT and ST has no correlation with cost of property. Secondly, you cannot sign any bilateral agreement with the seller.
Hi Nitin,
What is latest rate of VAT on Under construction property (flat) in Haryana?
Is this kind of information available open for public and customers?
Under composiiton scheme it is 1% of the total consideration value.
Thanks Nitin.
Is this a optional scheme or does each developers has to mandatory follow it? I read about it and it imposes restrictions to developers in terms of not collecting it from customers as well.
Builder can follow either method 1 or method 2 as i explained in my post. It is not compulsory to follow composition scheme. You may check your local state rules.
Though builder cannot collect from customer but it depends on your agreement with the builder. If there is a clause that you will bear VAT and ST then you have to pay to builder.
Hi sir, very lucidly presented article, thanks and congratulations, my query is who will decide on the method of calculation of Service tax?. I have bought a flat in chennai (less than 1 crore), builder charged me 3.55% Service tax, can I say that I will pay St only @3.09% on the total value of the flat. If the agreement says all applicable taxes shall be borne by the buyer, should the VAT also be paid by the buyer? Please clarify
It is decided by the builder. 3.09% ST was applicable when ST was 12.36% but as ST is now 14% from 1st April there it is 3.5%. VAT will also be paid by the buyer.
The agreement was made during 2012, the project has got amenities like swimming pool, club house, park etc., Is the builder correct in charging over and above 3.09%. Sorry to bother you again sir.
You need to check your agreement and also when builder is paying the service tax. If it paid on or after 1st April, 2015 then ST applicable will be 3.5%.
I have purchased the flat in Dec 2011 from builder now since last year as I m a society member we have filed a case against builder for OC since that time he is sending some notice for vatt and service taxe Wat we need to do for the same .
You need to check your agreement i.e. relevant clauses regarding the same. Normally, after possession is received and flat is registered in buyers name, builder cannot demand VAT and ST as it is applicable only for under construction property.
For under construction property, VAT & ST cannot be avoided. It has to be paid either by the builder or by the buyer.
Thank you for fast reply. I read somewhere that if total flat area is less than 60sq.m then there is relaxation on service charge.Is it true? And we paid some money in sept 2014 to the builder and made paper for the same for this under-construction flat and we will pay next month the remaining amount, so untill when do we have time by when we need to pay stamp duty and register our flat ?
Low cost houses with a carpet area of less than 60 sq.m.
constructed as a part of a housing project or under the “Scheme of
Affordable Housing in Partnership” started by Ministry of Housing and
Government of India are also eligible for service tax exemption. Please note that Service Tax exemption has to be approved by competent authority.
Hai i would like to know what is the reson for not paying VAT and ST for ready to move in apartments?
VAT is applicable on Material Cost. ST is applicable on Service and Labor cost. All these costs are not applicable for ready to move in flats.
Could you please help me in advising the following;
Haryana VAT on real estate is applicable since when. I booked an apartment in oct 2007 which was to be delivered in Dec 2010 still not delivered. If the applicability is before 2010 then I guess I am liable to pay and if applicability after 2010 it is point of contention since builder has delayed the project.
What is the percentage and on which component
Can the builder pass on this to buyer or builder has to pay on its won as per supreme court ruling
This query can be answered only after going through property documents.
HI Nitin,
Excellent info !!! :)
I need some help from you.
I bought a flat in Bangalore, under construction.
1. ST, VAT calculation- the base price of flat ( total area*rate per sq feet) is 70 lacs. Amenities like car park, clubhouse etc are separate. How will the ST and VAT be calculated?
2. you mentioned above in point 5 “VAT & Service tax should be specifically mentioned in the sale agreement”. My construction agreement says- total contract price Rs. X which includes VAT, Service tax, Bescom etc.
Did you mean the ” amount” of ST and VAT should be mentioned in construction agreement?
3. Point 4 of yours ” Builder will issue 2 separate payment receipts”. Is this mandatory as per Law for builder to issue these receipts? My builder says he can’t give individual receipts for every flat owner as he pays consolidated tax. In short he is not ready to give the receipts. what should i do???
1. Please check my post. Depending on the method adopted by builder, VAT & ST can be calculated.
2. Ideally, it should be mentioned in one of the agreement
3. VAT and ST is paid for the flat though total payment is consolidated. As he is selling flats as an individual unit therefore payment receipt can be issued against the flat.
Hi Nitin,
Nice article and great and quick replies in comments section.
I have purchased under construction flat from land owner. land owner has joint development agreement with builder who is developing the land and both have 50-50 share in flats constructed.
Owner has not mentioned any thing about S.Tax and Vat to me or any other ppl he has sold his share of flats, whereas builder has collected s tax and vat from the people he has sold his share of flats.
The construction will be completed in next 5-6 months. what will be S. tax and vat implications on owners share of flats and who will pay the same?
Seems land owner has claimed exemption from VAT and Service Tax. Prima facie VAT and ST is not applicable on Land Owners share.
Dear Sir:
My client is building villa plots in Mysore.
Vat is applicable only on 70% or for full 100% of the construction cost.
Since it will be single residential house service tax is applicable or not. If applicable what is the rate of service tax percentage.
Waiting for your valuable reply.
I request you to kindly go through my post. There are 2 methods to calculate VAT. Prima facie it seems that Service Tax is not applicable if the unit is constructed as single residential unit.
Hi Nitin,
Thanks for the knowledge you shared. This was really helpful for first time buyers like me. I have some queries, would love if you would help. I am buying an under construction flat, I mentioned Under construction since the builder is yet to get an OC, but people have started moving in. Would like to know since the service tax is increasing from 12.36 percent to 14 percent, how much more ST will i be paying. I mean from 3.09 of the agreement value before, what will be the value now. Also , as you mentioned if i sign the agreement after the builder gets an OC, will I be still paying the service tax and VAT. Pls put some light on the same .
Thanks & Regards,
Miten Panchal (Mumbai)
It seems builder must have paid service tax by now to the government therefore it will be 12.36%. Once the CC or OC is issued, VAT and ST is not applicable.
Hello,
I have purchased flat which was under construction so I have to pay service tax.
But i would like to know that if I have paid all amount of flat including loan cheque in April’2015 then which service tax will be applicable for me to pay as I have yet to give service tax to builder. My Dastaveg is made on 6th April’2015 and all payment made on same date.
Please advise my service tax rate whether old rate 12.36% or new rate 14%?
Also should i have to pay this service tax to Builder and they will pay to Govt. as they are asking for money.
Please guide us. Waiting for you reply asap.
Thanks
You have to pay service tax to the builder. For other queries, Please check my following comment
https://www.nitinbhatia.in/real-estate/vat-service-tax-under-construction-flat/#comment-2059161305
Hi Nitin,
3.5% came into effect on 1st June 2015. If some one is signing on the agreement of sale on 29th May 2015, the rate that would apply would be 3.09% or 3.5%?
I request you to check my following comment
https://www.nitinbhatia.in/real-estate/vat-service-tax-under-construction-flat/#comment-2059161305
Hi Nitin,
I have finalized an under contruction flat in Hyd and subsequently paid 20% of the flat cost to the builder in Feb’15 and started the loan process for rest 80% which was approved by bank in Apr’15. However, the project is not yet approved by bank due to some documentation furnished by builder has to be revalidated by legal.
Since the service tax is increased to 14% and applicable from June 01, 2015, do i need to pay both VAT and Service tax as per new rates or can i transfer the service tax hike builder due to his issue the project has not been approved till now.
Please provide me some guidance how should i tackle this hike issue.
Thanks,
Raj
Service tax will be paid by the builder to the Govt. Ref to your query, it will depend on various factors whether new rate will be applicable or not in your case i.e. Date of Provision of Service, Date of Invoice and Date of Payment. I suggest you to go through following post for more details.
http://www.caclubindia.com/articles/impact-of-increase-in-service-tax-rate-to-14–23878.asp#.VW5Z9UZBOM8
Hi Nitin,
I have finalized one property in Hyderabad, its approved by bank. I have made an agreement with the Builder.
THERE HE HAS NOT MENTIONED ANYTHING ABOUT “WHO WILL PAY THE VAT AND ST”.
I have already signed the agreement with the old applicable tax rates on April 14, 2015. I have paid him around 12 % and going to pay another 8% in next week. Rest 80% will be paid by bank.
He has divided the agreement in two parts as land price and Work order.
*Land price (Rs. 1500/sft as per govt rule) he is asking 1.25% VAT and 3.5% ST(revised rates)
*On work order also he is asking me 5% VAT and 5.6% ST (revised rates)
He has promised me the possession by September first week. I think he has not got the OC from municipality. He has just completed the external structure of the building.
My 3 questions ?
1. Whether I need to pay him the (VAT and ST on the Land Price) and (VAT and ST on Work Order)
2. If I have to pay these taxes whether I have to pay the revised rates of taxes or the older ones.
3. Is there any guidelines of Govt of India. Can you guide me from where I can get the 100% proofing documents on this matter to argue with my builder.
Please answer them. I am confused a lot.
Regards
1. It depends on agreement with the builder. If not mentioned in agreement then you need not pay
2. It depends when the builder is depositing the same with the govt
3. As per guideline it has to be paid by the builder
Hi NItin
Just wanted to check is there any change
Just wanted to check is there any change in service tax % while purchasing flat under construction
It is already revised w.e.f 1st June, 2015 from 12.36% to 14%. For residential building from 3.09% to 3.5%. Please check my following post
https://www.nitinbhatia.in/personal-finance/major-tax-changes-and-its-impact/
I heard not to buy any flat till 12th june .what is this all about.
I am not aware
Hi Nitin,
It is very informative post.thanks for clarifying on the VAT and ST mystery.
I am currently finalizing a flat with one builder. When I checked the VAT and ST calculation provide by them vs. what you have explained here, I am little concerned with my builders calculation.
For your reference the details as provided to me by builder. (I am checking this for 1571 SqFt @ rate of 3075 Per Sq feet).
VAT
Basic cost (1571@ INR 3075)+ car parking (150,000)+ Amenities (175,000)=4830825+175000+150000=Rs.51,55,825/-
Landowner share*2720=(1571*32.62%) *2720=512*2720=Rs.13,92,640/-
->land owner share there is no vat
Rs.51,55,825 – Rs.13,92,640 = Rs.37,63,185
Rs.37,63,185 – 30% Labour charge= Rs.26,34,229
Rs.26,34,229 * 14.5% vat = Rs.3,81,963/-
Service Tax:
Rs.51,55,825 – 75% tax discount = Rs.12,88,956 (25% tax)
->only for 25% need to pay tax
Rs.12,88,956 * 12.36% = Rs.1,59,315/-
Total = 3,81,963 + 1,59,315 = Rs.5,41,278 (10.4%)
Now as per the above calculation I have to pay 10.4% of the cost, instead of ~8.59% you explained in above post.
Also the builder is calculating land price @ 32.62% but at reduced rate of 2720 psf, With his calculation the Material cost almost make for 51% of the cost. Is the builder is correct in his calculation?
Regards
Deepthi
To answer this query, i need to check agreement, payment & other details. As i mentioned, calculations also depend on builders accounting.
Hi Nitin,
My main concern is that while calculating builders or Land Cost, he is taking it @ 32.62%, which is is roughly in range of 35% you mentioned in your post and I am fine till this point. Next he is using the guidance values of the area which is 2720 and not the sale value which is 3075 psf, thus further reducing Land Cost, and increasing Material Cost to almost 51%. Is this correct way to define Land Cost?
As per my builder I have to pay Approx 5.5 Lakh as VAT and ST (for a 51L property) which is much more than as per your calculation!!!
Also does VAT and ST apply to Car Parking, Amenities and PLC @ 14.5 and 12.36% respectively?
As i mentioned it depends on builder’s accounting. You may clarify from builder. I have shared common practice in this regard.
Dear Mr. Bhatia,
Greetings!
Would like to know if you can share the supporting documents which confirms that there is no VAT and ST to be paid in case of receipt of OC as the developer is asking me to pay the same.
Thanks,
Saiprasad Iyer
For any personalized consultation, you can avail paid services.
Dear Sir,
I have below query regarding S.T. and VAT for new property in navi mumbai:
I have purchased a flat in Navi Mumbai. Agreement value is 26 lacs. Out of this, 22 lacs will be disbursed by bank.I have paid remaining 4 lacs (white) to builder in the month of may as a booking amount. Now builder has received the OC (Occupancy Certificate) in first week of june. We have not yet registered the Agreement. We are planning for registration in last week of June.
I would like to know whether I need to pay ST and VAT.
As per my knowledge, ST and VAT are not applicable as OC has been already received by Builder. Still Builder is telling me to pay these taxes as booking is done prior to OC. Kindly give your valuable feedback in this regard.
You can check the date on OC. If the OC is issued by govt authority before your booking date then VAT and ST is not applicable. Otherwise builder is Correct. As you booked the property before date of issue of OC therefore VAT and ST is applicable.
Thanks a lot..Sir..
Dear Mr.Nitin
First of all thanks for the article, very much informative.
Now I would like to discuss my problem with you:
See I have a client who are builders and contractors, first:-they will purchase the site build a single residential house on it, then sale it. second:- they will also do construction contract where site is not own by them but construct the building for customers under an agreement.
They took the VAT registration lately( may be after 1.5 years of starting of business) under composition scheme(karnataka VAT), they have paid vat at 4%(rate under composition scheme in karnataka) on all the current and previous construction projects(prior to registration) they have undertook.
now the problem is can VAT authorities could ask my client to pay full amount of VAT which was undertaken prior to vat registration under composition scheme?? please clarify, because there is no point or logic on asking full rate of vat when the builder opt for composition scheme and collected only 4% vat on contract value. because the original intention of the builder is to collect and pay 4% vat under composition scheme, how could department ask them to pay full VAT prior registration.
please reply soon.
Sorry, i could not understand what is being referred as full amount of VAT. I request you to go through my post. A builder may adopt either of the method for calculation of VAT and Service Tax.
my question is very simple, I understood your post fully. Now my question is if builder get registered for vat at composition scheme 2 years after incorporation of company, then for that 2 years where he has not registered under vat, he need to pay 4%(rate under composition scheme) or regular vat at 14.5% after availing benefits you mentioned?
Builder can calculate and pay VAT either under composition scheme or at regular rate. It depends which method he adopts.
Does VAT calculated at Parking, Amanities,PLS etc @ 14.5%? or only on basic cost? You mentioned ST is caulated on Amenities, PLC etc will be 12.36%.
Please go through my post. It depends which method is adopted by builder to calculate VAT and ST.
hi sir
I am Dr Thakur from Hyderabad, i have gone through your very
useful article.I have purchased a under construction villa from land
owner share and got registered in November 2014 itself and now
construction is over and builder is asking me to take occupancy
certificate and asking me to pay service tax ,,i never paid amount in
builder name i paid everything to owner name it self,So as per your
article i have argued with builder that there will no service tax under
land owner share but he is denying it,He is collecting more than 5%
from other villas ,all villas below 40 lakhs and less than 2000 sft.He is keeping tax component 40% instead of 25% .I asked
him to give Service tax due details on bond paper ,he is denying for
that also.I said i will file case in consumer court.
so please advise me wht next i have to do.
hoping for your advise.
yours sincerely
Dr Thakur.
I can answer this query only after going through property documents.
hi sir
can i scan my agreement papers to your mail.
Personalized consultation is available on paid basis. If you wish to avail the same. You can contact me either through mail info@nitinbhatia.in or call me at +91 94800 21000.
Hi Nithin,
We bought a owner share Villa in a venture consisting of 20 houses with builder and owner sharing 50-50, agreement is made by builder but all payments went to owner, now builder is asking for Service tax which he has no intention of paying government. According to our understanding owner share houses does not incur service tax. If it is legal we are ready to pay government, but he wants payment made to him. Our agreement states we are supposed to pay X Amount of payment + Government charges, We paid X amount and government charges and registration completed. There is no mention of Service Tax on our agreement. Now builder is not handing over until service tax is paid. Since the registration is completed can we take over the house
Legally if the registration is completed then you are the owner of the property. Builder cannot deny possession. You can file a police complaint.
Technically, VAT is not applicable on Land Owner’s share but service tax is applicable. If is mentioned in the agreement then you have to pay the same. You may demand service tax payment receipt from the builder.
Hi Mr. Nitin,
I have booked a flat 1.5 years before at Howrah maidan area with Rs. 400000/- as an advance amount. But due to property papers litigation two banks has been refused to disbursed money against this booked property. After that builder agreed to return my money and yesterday they have made with 3.5% deduction of Rs. (400000-386000) 14000/- as a service tax. Not only that they are not agreed to give any tax declaration certificate also.
My question is that I have not got service from their end so why I will pay that much of amount as a service tax ? As per service tax rules is this justify ?
I will be thankful if you advice me to come out from this situation and awaiting for your early reply.
Thanks
Koushik
It depends how he has accounted the refund in his books. Ideally, he should have returned advance paid without deduction.
Hello Mr Nitin
I have a query regarding the Service tax payment as the rates have now changed from 12.36 to 14%.
I had Initially paid to the Builder on Behalf of my Sister who had booked a flat in the Year 2013-14.
In May 2015, my Sister had disposed her property and the sale proceeds which were received in June 2015, were paid to the Builder for the new Flat in June 2015 and for this the builder reversed me the amount which i had paid him earlier.
I paid Service Tax to the builder on 30-May-2015 thru NEFT at 12.36%.
As of 30-May-2015 the building is ready and only waiting for Occupation Certificate/Completeion Certificate.
Now he is saying that as the Payment is received in June 2015 from my Sister i have to pay as per 14%.
Kindly advise whether i should pay him at 12.36% or 14% service Tax.
Thanks
Samir
It depends when he has deposited the service tax. Service tax is paid for entire project not for individual flats. Prima facie it seems he is trying to extract extra money from you.
Thanks Mr Nitin. What should be the next step? Is there any Govt helpline no or Mail id wherein i can post this query?
You need to check with builder only.
Hi.sir.plz help me on my query. I booked under construction flat and also signed flat agreement to sale and took loan frm bank. Builder put S.T&Vat tax over me under agreement.Builder got O.certificate frm local authority .still I m not get register sale deed frm builder.Suppose I again put charges of S.T&Vat tax upon builder under final sale deed of flat.Then who is liable to pay S.t.&vat tax.after sale deed?
Builder
hi nithin
may i know ST applicable for land owner share for under construction villa and if applicable then pls tell me wht will be ST for 3850000 rs
Please go through my post on this page.
Dear Mr. Nitin,
How does the tax rule work in case of self constructed property. We got our home constructed by a builder. He is charging ST and VAT both on the amount. Please suggest the rate he should charge at and if both VAT & ST are payable by us.
Our contract with the builder mentions ST/VAT but he is quoting that both are to be charged.
Thanks
You should ask for breakup of Material Cost and Labour/Service Cost. VAT will be applicable on material cost and ST will be applicable on Labour / Service Cost. Please check my post for more details.
Hello nitin, I had bought a flat in-Nagpur in Mar 2014 (20:80) scheme.I did the aggreement in Dec 2014 for the flat. The builder is now giving us the possession in July and has received the OC certificate. I and my banker are paying the rest of the 80% at the time of the possession. Am I liable to pay the Service tax for all the heads. Also, please let me know if Society formation, Water and Electricity connection,Club membership are also subject to Service tax and the buyer is required to pay.
I request you to go through my post on this page. I have explained both the methods used by builders to calculate service tax. You may clarify from builder which method he is using in your case.
Hello Nitin, to the above PKP’s question, the method -2 is used by the builder to calculate VAT @ 1% and ST @ 3.09%. In this case..
1) question is, Club membership fees, Society Formation (sink funds), water and electricity connection are subject to Service Tax ??
2) What if one has paid 20% booking amount to builder, but haven’t done the Sales Agreement (Registry) as remaining 80% only need to pay at the time of possession. Now that Completion and OC are issued for a building. In this situation, can builder still insist on buyer to pay VAT and ST?
Hello Nitin, to the below PKP’s question, the method -2 is used by the builder to calculate VAT @ 1% and ST @ 3.09%. In this case..
1) question is, Club membership fees, Society Formation (sink funds), water and electricity connection are subject to Service Tax ??
2) What if one has paid 20% booking amount to builder, but haven’t done the Sales Agreement (Registry) as remaining 80% only need to pay at the time of possession. Now that Completion and OC are issued for a building. In this situation, can builder still insist on buyer to pay VAT and ST?
1. Method 2 calculation is on total contract value which include everything
2. It depends on date of allotment.
Hi Nitin,
I’ve taken an under construction flat on December, 2014 in Hyderabad. During
that time, builder said that I need to pay service tax 3.09% and Vat 1.25% on
Flat cost(39, 50,000 = 22,00,000(Sale Deed) + 17,50,000(Work Order)).
I paid 95,480 as service tax(3.09) + Vat(0.25) on Sale Deed 22,00000. Remaining Service Tax and Vat has to be paid later against‘Work Order’.
Today, I’ve received the following email from builder saying that Service tax has increased from
3.09% to 5.6% as the nature of Work Order is treated as contract for the remaining amount.
Email from Builder:
“This is to inform you that earlier we had been collecting Service Tax @
3.09% (i.e., 25% of 12.36%) and VAT @ 1.25% on the Flat Cost.
Please note that presently the Service Tax is revised as 3.5% (i.e., 25% of
14%) on the registered Sale deed value & VAT remains 1.25%.
On the Work Order the Service Tax is 5.6% (i.e., 40% of 14% ) & VAT is 5%
as the nature of Work Order is treated as contract by the respective
authorities & the above rates are applicable for Construction contract.
We have received notices from Commercial Tax department to remit tax @ 5% &
hence same will be charged at actuals to you on Work Order value Only.”
I know that Govt has increased Service Tax from 3.09 to 3.05, which is fine. But
the builder is saying 5.6% Service tax and Vat as 5%, which is huge difference
between Govt rate and Buider’s.
Could you please let me know is the builder saying correctly? If so, is there a way
to reduce this service tax and Vat and pay as per Govt rates?
Regards
Dileep
It depends on scope of work mentioned in work order.
Hi Nitin, scope of work mentioned in work order is plumbing, flooring, electrical etc.,
VAT is applicable on material cost and ST on service and Labour Cost. You may check scope of work and calculate accordingly.