Taxes on construction
Being of a nascent origin , there is a lot of confusion among buyers as to its applicability - on what amount is it leviable, when it is leviable, the rate it is leviable at and so on. Let us understand the concept and nature of these taxes. VAT and service tax have tended to escalate the costs of construction , which is ultimately taken out of the pocket of the purchaser.Firstly, let us understand VAT. It stands for value added tax. Under VAT, tax is payable at every point of value addition. VAT is calculated at 12.5 percent multiplied by 70 percent of the total cost. Total cost means the cost of the flat plus the cost of amenities. VAT is chargeable only with effect from April 1, 2005. Prior to this date, sales tax was leviable on the purchase of the property . The Karnataka Value Added Tax Act 2003 has come into force from April 1, 2005. VAT is payable in addition to the stamp duty and registration charges, payable by the purchaser at the registration of the property .
Service of construction of housing complexes is a taxable service. This service was introduced by the Finance Act of 2005 and brought within the fold of Service Tax Act. The tax is leviabe with effect from June 16, 2005. The Act had introduced levy of service tax on the construction services . The rate of service tax is 10 percent plus education cess of 0.2 percent, which makes it a total of 10.2 percent .
Service tax is calculated my multiplying 33 percent of the total cost of the flat (plus the amenities) plus the VAT amount by 10.2 percent. Service tax is leviable on the services rendered by the builder in respect of construction of the apartment. It is to be noted that the service tax is not leviable in all cases. It is leviable only in case the apartment block or building consists of more than 12 units or apartments. If the number of apartments is below that, then no service tax is leviable.
Service tax is leviable if any person provides or agrees to provide any service to another person in relation to construction of complexes . The term construction of complex includes residential complex developed by builders.
These construction services are included - construction of new residential complex , completion and finishing services in relation to a residential complexes whether new or old, and repair , alteration etc in relation to residential complex which is new or old. A residential complex includes the building/s located within a premises, total number of residential units within such premises should be more than twelve, and these must have a common area. Common areas may include roads, staircases and other similar areas where the residents of the residential complex do not have absolute ownership rights but share with other residents and have rights similar to easement rights. The common areas may have other facilities such as shopping complex, recreation centre, schools, security, banks, gymnasium, health club, sports facilities, eateries, power backup, swimming pools, jogging tracks etc. They should have common facilities or services. Layout of the premises should have been approved by the appropriate authority for the purpose.
In addition to these, any kind of post-construction services are also included as part of construction activity for the purpose of service tax. These post-construction services may include completion , finishing such as glazing, plastering, painting, floor and wall tiling, wall covering and papering, carpentry and similar services done in relation to a residential complex. This is so irrespective of the fact whether the complex is new or old.
Taxable services are included in construction agreement. The service tax is levied on service provided in relation to residential complex and is payable on gross amount charged by the service provider for construction services provided. This does not include cost of the land, stamp duty and registration charges paid for registration of land.
posted by Gaurav Malik @ 11:56 pm
<< Home