In the Finance Act of 2010, the government has decided to impose service tax on the purchase of under-construction properties. However, this tax is applicable only if the consideration (either in full or in part) has been paid by the buyer to the developer prior to the issuance of a completion certificate by an ‘appropriate authority’. The activity of construction has been deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax is charged accordingly. The ‘authority competent’ to issue completion certificate has been widened to include authorities other that the government authorities[1]. Completion certificate issued by an architect or chartered engineer or licensed surveyor can be now taken to determine the service tax liability.
After these were brought forward in the Finance Bill, 2010, views were expressed that the tax liability on construction sector has been tightened at a time when the sector was recovering after recession. Keeping this in mind the government provided that the abatement which could be claimed by the builders in respect of these services was increased from 67%[2] to 75%[3]. Therefore, the service tax is leviable on only 25% of the amount paid before the issuance of the completion certificate. At 10.3%, this turns out to be roughly 2.575%(10.3% of 25%) of the total value. Therefore, a flat worth Rs. 40 Lakhs becomes dearer by around Rs. Lakh. Importantly seventy five percent abatement will be applicable only if the gross value of commercial or residential complex or unit includes cost of land. Otherwise the existing rate of abatement of 67% would continue to apply.[4] Service Tax exemption is provided to construction done under the Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana.[5]
[1] Notification No.28/2010- Service Tax, dated 22nd June, 2010
[2] Notification No. 1/2006-Service Tax, dated the 1st March, 2006
[3] Notification 29/2010-Service Tax, dated 22nd June, 2010
[4] D.O.F.No.334/03/2010-TRU
[5] Notification No.28/2010- Service Tax, dated 22nd June, 2010
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