The 2010 budget issued by the government has come as a big shock for prospective buyers of house property. The budget flashed the highlight that now sale of under construction houses will come under the purview of service tax. The under construction of house will be in respect of any kind of immovable property which may be in form of apartments, flats, rows etc. As it is, the prices of real estate are raising everyday now the buyers will again need to add an extra amount to their budget. An extra amount that will be equal to 10.3% of their earlier estimate, as service tax has been levied on sale of such property. Along with it, the Finance bill, 2010, has included eight new services which have now come under the purview of service tax. These policies are applicable from the 1st of July, 2010.
The current proposal has been under severe criticism but the government has well defended its idea. The government has concluded that when a builder is working on a construction of a house, he is discharging a service and hence sale of under construction house will come under service tax. Added to this two new sections have been introduced in the Finance Act 2010, namely, SEC 65 (105) (zzq) and (zzzh), states that the edifice of a new building which is proposed to be sold in wholly or partly, by the constructor to a n individual, during or after grant of completion credential by the proficient authority to be services provided by the builder to the prospective buyer after receiving the completion certificate.
Exemption:
- Exemption in service tax is provided in the area of construction which is being carried out under The Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojna. These sectors have been specifically exempted by means of notification no. 28/2010 dated 22nd June 2010.
- As said earlier all sale of under-construction property will come under the purview of service tax, whereas resale of such properties will not attract any sort of service tax.
- Purchase of a house costing less than20 lakhs will not come under the service tax. A basic exemption up to 20 lakhs have been granted for people who are not that financially strong.
- If the buyer purchases the property after the completion of the project, in such a case service tax is not required to be paid by the buyer as the property has completed its construction and this attachment is about property under construction.
Abatement:
A relief has been granted to the contractors also as service tax is not being charged on the whole amount of consideration but only a part of it qualifies for the purpose of calculation of service tax. A general abatement of 67% has been provided in respect for the cost incurred by the builder on land, materials, labor, etc. Only the remaining 33% is the basis on which service tax is calculated. In short, the buyer needs to pay service tax on 33% of his payment which sums up to an effective rate of 3.39% [10.3 x 33%].
Thus, one can clearly observe that the amendments in the Finance Bill 2010 are not as severe as they appear to be. Proper assessment has been carried out and it seems to be a fair step by the government to raise funds to meet its increasing expenditure.
Related posts:
- New Provisions of Service Tax on Sale and Construction of Residential Property
- Union Budget 2010: Construction Services Tax to Raise Cost of Apartments
- Service Tax on Builders
- Service Tax Latest Notifications
- Service Tax Notifications From No.51 to 58
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