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INDIA
BUSINESS WORLD -
JUNE 2005
THE MONTH THAT WAS
10.2%
SERVICE TAX ADDED COST OF FLATS
Your dream house
in that swank apartment block will cost a bit more June 16
onwards. A 10.2% service tax will be added to the cost of
a flat in all housing complexes with more than 12 units developed
by builders from that date, the government has said.
But the before you think that the tax would be levied on the
full value of the flat, here's something to cheer about. Service
tax is to be charged only on the value of the contract for
constructing the block. Land value will be excluded while
computing service tax.
Further, abatement of 67% on the value of the contract is
to be allowed if the contract of construction is turnkey one
- the contractor supplies the material and labour. If the
contract is only a labour contract, that is construction material
is provided by you and is billed separately, the value of
the labour contract would attract the service tax levy of
10.2%. No abatement is to be allowed in labour contracts for
construction of the apartment.
To understand this better, assume the cost of the apartment
at Rs 20 lakh - Rs 5 lakh as the land cost and Rs 15 lakh
as the value of the composite contract. In this case, the
service tax would be levied on 33% of Rs 15 lakh. Thus, service
tax of about Rs 50,000 would be passed on by the builder to
you in the final billing.
The abatement of 67% has been provided for inputs such as
construction material on which tax in form of excise, value
added tax and central sales tax would have already been paid.
Now consider the construction of a flat on a labour contract
basis by a co-operative group housing society. The land value
is taken at Rs 5 lakh, the cost of materials procured by the
society at Rs 11 lakh and value of the labour contract at
Rs 4 lakh. In this case, service tax levy would be calculated
on Rs 4 lakh which is taken as the value of the service provided.
The service tax at 10.2% would work out to about Rs 40,000
per flat in this case.
A 67% abatement of service tax is available on business construction
and the benefit has now been extended to residential construction
as well, said Dr Parthasarathi Shome, advisor to FM. The decision
to impose service tax on construction of residential complexes
with more than 12 apartments was announced in the Budget.
However, builders said it would jack up housing costs, forcing
the government to soften the blow.
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