INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

NO SERVICE TAX ON APARTMENT SALE

YOU could well be spared from paying a 12.2% service tax on your dream house in a swank apartment complex. The government has made it clear that a builder or a realty developer who builds property himself will not have to pay service tax. Simply put, there will be no service tax on sale of a flat.

This means owner of the flat will not have to bear any extra cost. Builders, though, are awaiting a final verdict from the High Court to seal the issue. Realty developers in the Maharashtra — Promoters and Builders Association of Pune and Maharashtra Chambers of Housing and Industry and others — moved the Mumbai High Court challenging the government's move to levy service tax on sale of flats in housing complexes with more than 12 units. According to them, builders or realty developers per se were not service providers. Normally, service tax is levied on the service provider who, in turn, passes on the burden to the user (in this case the owner of the flat).

The finance ministry's Tax Research Unit (TRU) appears to have endorsed the builder's stance, though the matter is still sub judice. The TRU has clarified that a builder or a developer will not have to pay service tax if he constructs houses on his own, without engaging the services of any other person. ‘In such cases — in the absence of service provider and service recipient relationship — the question of providing taxable service to any person by any other person does not arise” states the clarification.

PBAP office bearers declined to com-Residential complexes were brought under the service tax net from June 2005. The government had said that service tax will be charged only on the value of the contract for constructing the block. Land value will be excluded while computing service tax. Further, an abatement of 67% on the value of the contract will be allowed if the contract of construction is turnkey, i.e the contractor supplies the material and labour.

The finance ministry has, however, held that in a case where the builders, promoter or the developer builds a residential complex with more than 12 units by engaging a contractor, the contractor will be liable to pay service tax on the gross amount charged for the construction services. ‘Builders did not contest the levy of service tax on contractors. They have only opposed levy of service tax on the sale of a flat,' said an industry analyst.