Few days Back we have received a Comment from a reader that he has Booked a Flat and his builder is asking him to pay Installment in advance to save service tax as it is going to be increased from 01.07.2012" But the Fact is totally on reverse side. The fact is that service tax effective amount payable by developer is reduced and this benefit must be passed on to the buyer by reducing the rates of the Buildings etc.
Hold on ....I know that every body is anxious to know the detail and Notification number by which this reduction in effective rate has been done.Details is given below.
Service tax on activity of developers of selling the building or part of the building to be constructed on advance payment (usually construction linked payments) was made subject to service taxunder the category of “Commercial or Industrial Construction Services” and “Complex Construction Services” w. e. f. 01.07.2010.
Now, w. e. f. 01.07.2012, in negative list regime, activity undertaken by developers have been included as declared service in clause (b) of section 66E of Finance Act, 1994.
Huge Benefit in the form of CENVAT Credit: Prior to 01.07.2012 also, rate of abatement was same i.e. 75% and taxable portion was 25% of gross amount (including land cost). However, earlier there was absolute bar on availment of CENVAT Credit.
However, now, CENVAT Credit in respect of capital goods and input services (as defined under rule 2 of CENVAT Credit Rules, 2004) has been allowed w. e. f. 01.07.2012. (CENVAT credit in respect of inputs shall not be allowed).
Usually, developers get the construction done from a construction contractor who charges service taxfrom developers in respect of construction services provided to developers.
Now, CENVAT Credit in respect of capital goods and input services (including construction service received which is a substantial expenditure) shall be allowed.
Now, developer shall continue to charge service tax from their customers, however, they will now avail CENVAT Credit and deposit lesser amount of service tax in cash after availment of CENVAT Credit. In other words, amount equivalent to CENAVT credit availed by developers will be net saving for developers.
Thus, developers discharging service tax must place a system for availing the CENVAT Credit as per the provisions of CENVAT Credit Rules, 2004.
Example: A Flat is sold for 10,00,000 including land value.After abatement of 75 % ,service tax on 25 % value @12.36 % Rs 30900/-charged by builder. As per notification 26/2012 given above,while depositing the collected service tax amount from the consumer ,Developer can claim cenvat credit on capital goods used and cenvat credit on services .
Suppose Input Capital goods used and input services received to construct this flat is worth Rs 2 lakh. Cenvat credit available on 2 lakh 12.36% is Rs 24720. So Developer /Builder is required to pay balance only Rs 6180(30900-24720).
After this amendment 26/2012 , there is a direct benefit to builder/developer. In the given example benefit is of 80 % of the service tax collected from consumer . This benefit will increase / decrease with increased used of capital inputs and Input services in construction activities.In few case nothing is payable by developers.
So technically developer/builder should pass on this benefit to consumers.
Information for all Contractor/Builder/developer :We are informing this to all contractor/ developer /Builder so that they can avail this benefit so pay correct reduced amount of service tax to Govt.
Information for all Consumer and prospective Buyers :And most importantly to the consumer/Buyer of the Houses /flats etc so that they can know that in fact service tax liability of contractor/ developer is reduced in construction services after 01.07.2012 so that they can renegotiate their rate with the Builder/contractor/ developer.
Dear Commune Buyers...
Beware builder is claiming price of 2100-2200 psf.. but he is adding some hidden costs and some of the calculations are completely absurd. Just see floor rise cost, ST percentage, Cauvery charges extra( This building does not come under BWSSB juridiction .), club operating charges. amenities 3 Lakh.
Service tax is 12.36 on 25% of cost i.e 3.09% of Whole-Amount.
this Whole-Amount does not constitute Car Park, Generator, STP, .... etc during ST calculation.
So, their price is more that 2500 psf.