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Service Tax + VAT in under constuction project
May 18 2012 , 10:40 PM   #1
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Service Tax + VAT in under constuction project

Hi friends and experts,

I am trying to understand concept of VAT and Service Tax in underconstruction property in Bangalore.

As far as i know VAT is about 14% of 70% of construction value and Service tax is 12.3% of 30% of construction value in Bangalore.

Is VAT % decided by Karnataka govt? Also prominent builders like purva, brigade charge VAT and Service Tax on full amount of the property and not on construction value? Is this the correct procedure?

Some mid size builder will collect VAT and Service Tax on construction value, which results in substantial savings?

Which is the correct and legal way? Please comment.
May 22 2012 , 11:21 PM   #2
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hi friends,
any updates or any pointers on vat + service tax calculation for under construction project in bangalore?

Quote:
Originally Posted by shaijasa2
Hi friends and experts,

I am trying to understand concept of VAT and Service Tax in underconstruction property in Bangalore.

As far as i know VAT is about 14% of 70% of construction value and Service tax is 12.3% of 30% of construction value in Bangalore.

Is VAT % decided by Karnataka govt? Also prominent builders like purva, brigade charge VAT and Service Tax on full amount of the property and not on construction value? Is this the correct procedure?

Some mid size builder will collect VAT and Service Tax on construction value, which results in substantial savings?

Which is the correct and legal way? Please comment.
May 23 2012 , 10:43 AM   #3
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Have a look at this thread - http://www.indianrealestateforum.com...-tax-4975.html

Ideally there should not be any service tax applicable for under construction property.
May 23 2012 , 10:49 AM   #4
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hi bangy,

thanks for your thread. but all the underconstruction property in bangalore is being levied with service tax and vat in bangalore.

do you what is the exact % which need to be charged for VAT?
Quote:
Originally Posted by bangy_11
Have a look at this thread - http://www.indianrealestateforum.com...-tax-4975.html

Ideally there should not be any service tax applicable for under construction property.
May 23 2012 , 10:53 AM   #5
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See the rules are not very clear and there are some cases pending before SC.

It depends how is your agreement with Builder.

If there are 2 agreement, 1 for sale and 1 for construction, then it should be levied on construction value only.

If its a single sale agreement, there should be no service tax or VAT.

These builders just cheating customers.

Only reputed builder I know in Bangalore which are of same opinion is Patel Reality (Neotown project).
November 8 2012 , 11:11 AM   #6
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Service Tax [3.09]

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.

Hope you will find the above useful.
bangy_11 and rupeshvyas like this.
November 8 2012 , 01:14 PM   #7
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Good one sumitrananda
November 8 2012 , 02:30 PM   #8
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commune is cheating with 5% service tax...

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.
sumitrananda albums eternia picture271 commune
November 8 2012 , 08:25 PM   #9
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its club operating charge not club opening charge

but the charges are on higher side for that location, Nowadays its a become a trick from builders to price the base rate low and take extras more.
November 22 2012 , 11:57 PM   #10
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are Commune India reputed builders ? I was planning to book a 3bhk there (for living). Need your suggestions please
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