Service Tax calculation for Apartments

POSTED BY Loganathan ON June 27, 2012 7:13 am COMMENTS (36)

I recently book an apartment in Chennai it’s a gated community with 400 apartments along with amenities like club house, STP, WTP Piped gas, Covered car parking and Open car parking. Could you please tell me how the service tax is calculated, which are the factors applicable to service tax? Also they are charging 1.8% of Basic cost as an Other Reimbursement fee. Kindly Clarify

36 replies on this article “Service Tax calculation for Apartments”

  1. RoshanZaparde says:

    Hello Dear Ashal,

    I have bought one flat in pune in 2010 for which agreement was done in nov 2010 and possession was given in jan 2011.
    That time I think there was no clear-cut guideline from govt to pay the service tax and VAT or not.

    But recently our developer is asking to pay the service tax and VAT.

    As per my knowledge builder has paid the taxes to govt and in the agreement he has asked to pay the tax in future whenever he asks.
    I am really confused now to pay taxes or not. It is now more than 5 years i am residing in the same flat.

    During these 5 years are the rules changed?

    Please suggest .

    Thanks in Advance.
    Roshan

  2. phani says:

    : I stay in Hyderabad. I have purchased a flat which is mortgaged to GHMC and the builder can register the flat on my name only after it is released from mortgage.I have few queries on Service Tax and VAT that I need to pay to the builder. Appreciate if someone help to understand about these. The Agreement of Sale Value is 2 Lakhs and Sale Deed Value is 40 Lakhs for the flat. I have paid an amount of 2 lakhs as booking amount before the occupancy certificate is issued. While searching over the internet, I found that “No service tax on ready to move in flat after obtaining the occupancy certificate”.As the flat under purchase is mortgaged to GHMC, builder can only register it on my name only after the occupancy certificate is issued.In this case, Do I need to pay the service tax as the builder is insisting me to pay? If I need to pay the service tax then Do I need to pay it on agreement of sale value or sale deed value?

    1. Hi phani

      Your cases is a bit complex and I think we are not the right people to comment on it.

      My suggestion would be hire someone who is professional in this area and consult them

      Manish

    2. sridhar says:

      Hi Phani, As per discussed with once of my friend who is doing jpb in construction company. The service tax not applicable on flat which is ready to occupy. If its under construction have to pay service tax as per law and states.

  3. Hardik says:

    Good info

  4. JIGARGANDHI says:

    hello sir
    i have a purchases flat in Bhavnagar (Gujarat) and Dastvej cost Rs.11.50 Lake and my construction side is under process and my flat potions time Dec-2017 so please Guide advance with me how my Liabilities on service tax % ???

    Thanks

    1. Hi JIGARGANDHI

      A CA is more qualified to answer you query, hence I suggest better get in touch one.

      We are not right people to talk on this

      Manish

  5. Raj says:

    I am buying a builder-floor ready-to-occupy flat ( tiling and fittings are pending). There are 5 flats in that apartment. Only 1 flat has been sold yet. Am the second flat buyer. The builder is charging me 4% service tax on the total price that I am paying to the builder (inclusive of car park, EB etc,). I am not sure if I should be paying so much. Will I get a certificate of payment of service tax and can I pay it directly to the government. What if I refuse to pay? Is it right?

    1. Hi Raj

      Thanks for asking your question. However we do not have answer to your question.

      Manish

  6. RAJESH says:

    dear sir,

    my query is if flat is redye petitions (not under construction ) but completion certificate not issue by corporation
    then that case service tax pay ? and completion certificate is issue by corporation so that case service tax pay ??????

    thanks

    Rajesh

  7. Deepa says:

    I have purchased under construction flat in Mulund, Mumbai. The flat cost is Rs 1.45 crore and the carpet area of the flat is 1215 sq ft.

    I have made part payment in Oct 2012 and was charged Service Tax @ 3.09%. From March 2013, I was advised the Service Tax has increased to 3.708%. Please advise if this is correct.

    Additionally the builder has charged me Service Tax @ 12.36% for the following payments made by us towards charges / deposits which is normally due on completion. Please advise if this is correct. Appreciate your guidance.

    CLUBHOUSE MEMBERSHIP FEES Rs 370000
    SOCIETY FORMATION CHARGES Rs 2500
    MAINTENANCE OUTGOING CHARGES (18 MONTHS DEPOSIT) Rs 166500
    INFRASTRUCTURE CHARGES Rs 370000

  8. Deepa says:

    I have purchased under construction flat in Mulund, Mumbai. The flat cost is Rs 1.45 crore and the carpet area of the flat is 1215 sq ft. I have made part payment in Oct 2012 and was charged Service Tax @ 3.09%. From march 2013, I was advised the Service Tax has increased to 3.708%. Please advise if this is correct.

    Additionally the builder has charged me Service Tax @ 12.36% for the following payments made by us towards charges / deposits which is normally due on completion. Please advise if this is correct. Appreciate your guidance.
    CLUBHOUSE MEMBERSHIP FEES Rs 370000
    SOCIETY FORMATION CHARGES Rs 2500
    MAINTENANCE OUTGOING CHARGES (18 MONTHS DEPOSIT) Rs 166500
    INFRASTRUCTURE CHARGES Rs 370000

  9. NitinJichkar says:

    How to calculate service tax in following case( Resident flat )
    Market Value 55,00,000/-( Stamp duty valuation )
    Selling Prices ie contract value 46,00,000/-
    ST whether to be calculate on Market value of Contract value

    1. Hi NitinJichkar

      Your cases is a bit complex and I think we are not the right people to comment on it.

      My suggestion would be hire someone who is professional in this area and consult them

      Manish

  10. sureshvarma says:

    sir

    i recently purchased an under construction appartment flat with 1110sqft area
    for which land value is 41000
    cost of construction is 1221000

    for which i paid service tax by cash to builder 69000
    he is telling that 5.6% s. tax on total construction value

    till now he is charging 3.5% to others who registered by june
    but after june he is charging 5.6%
    is it correct or not?

    why this much confusion to every builder they are also not having any data
    thanks
    suresh

    1. Venkateshwaran says:

      It’s absolutely correct. Because after June, the service tax is raised to 14%.
      So here is the calculation,
      Total construction cost: 1221000
      Out of which 40% is 4884000
      And 14% of 4884000 is 683760 (which is approx 69000)
      And you’re paying by cash because, if the builder is collecting by cheque, he’ll have to pay service tax for the service tax collected from you. Hence the cash payment

  11. Dinesh Iyer says:

    We gave some unsecured loans to the builder during construction and post completion of the construction when half of the money was returned we demanded an unsold flat against the balance money. Now is ST applicable on this transaction – even when the flat is in ready to move in position.

  12. Karthikeyan says:

    Hello Ashal,
    I read the thread completely, Still confused about Service TAX.
    Recently I booked a flat(Ready to occupy) near chennai,
    Flat cost : 26,90,000
    Car parking : 200000
    EB&registration : 1,50,000
    Total cost : 30,40,000
    And comes the “Service tax” 🙁

    As per builder’s Service tax calculation (25% of Total cost*12.36) that is = 94,000

    According to the article, ready to occupy flats are not liable to service tax.
    I enquired about this to builder and asked him for CC&OC but his reply is
    Since the flat is not in city limit so no Completion certficate & OC will be issued.

    Please advise and clarify me on this.
    Regards,
    Karthikeyan

  13. ashalanshu says:

    Dear Nitin, give reference of the above article to your builder and ask for reduced service tax demand.

    Thanks

    Ashal

  14. nitinindia says:

    Dear Expert Team,
    I have bought flat in 2011 as under construction property.I have paid service tax at 3.71% because of the unit size over 2000 sq ft.
    Recently Builder has sent the final demand along with intimation of possession of letter for my unit. The final amount comprises of following :
    Club Membership
    External Electrification
    Charges Fire Fightings
    Power Backup

    Now on all above charges builder is charging me service tax @ 12.26% instead of 3.71%.I have refferred the following link before posting my query on this forum

    Link : http://www.charteredclub.com/service-tax-on-under-construction-property-3-09/

    My query : Is it correct on part of builder to charge me 12.36% service tax on above or can I challenge his claim.

    If Answer to my query is , Yes I can challenge the builder incorrect demand of service tax, I need to know what do I write to him in order to reduce my service tax liability from 12.36% to 3.71%

    Apprecite and thanks in advance for helping me out in this matter.

  15. rajeshau3 says:

    Dear Ashal Jauhari,

    I am planning to buy a semi-independant villa (twin villa) near chennai in sriperubalur. The builder’s cost break up is as below :

    1. Land + Construction cost – INR 48,33,900
    2. Club House – INR 1,00,000
    3. EB – 25000, WATER – 25000, Maintenance – 50,000
    4. LEGAL – 25000
    5. DISCOUNT – INR 3,58,009

    TOTAL COST – INR 47,00,891
    Service tax (3.09%) on total cost – INR 1,45,258

    My query:
    1. With new change in service tax act from Jun’12 builders can avail cenvat credit on input material and input services, so do builder really pay above mentioned service charge to goverment?
    2. Should I pay service tax on Legal, EB, WATER, Maintenance which is almost 1,25,000?
    3. They are not mentioning the service tax amount of INR 1,45,258 in construction agreement is it ok? if ok what should be minimum document i should get from builder for payment of service tax

    Appreciate your help in this regard Sir.

    Thanks in Advance
    Rajesh

    1. Dear Rajesh, apart from your regular payment for house, please avail receipt from your builder for that 1.45L Rs. service Tax amount. Please pay that amount with a Bank Cheque only & ask for the receipt of the same.

      Maint., Club, Water…. should not be included in the cost of house for service tax purpose.

      Thanks

      Ashal

  16. Loganathan says:

    Here is the article about Service tax

    Budget 2010 introduced service tax on construction of property by builders. What does it mean for you as a buyer? Would you have to pay Lakhs of rupees more? Find out what would be covered under this new provision.

    Budget 2010 brought a rude shock to prospective home buyers. It stipulated that construction of house (in any form – apartment / flat / row house / etc) by a builder in a complex is a “service”, and introduced the service tax of 10.3% on such a service.

    What does this mean to you as a home buyer? Would the builder pay the tax, or would you be paying this large sum as a buyer? If an apartment costs Rs. 30 Lakhs, does it mean you would have to pay Rs. 3.09 Lakhs more for it? What about the money paid for parking space? Would you pay tax even on that amount?

    Let’s find out.

    1. Service Tax on Under Construction Property

    It should be noted that the service tax would be levied only on under construction property. A property is considered “under construction” till the builder receives a “completion certificate” from the relevant authorities.

    Thus, if an amount for the purchase of a property is paid to the builder before he obtains a completion certificate, it would be subject to service tax. Only if the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no levy of the service tax.

    Abatement allowed

    But don’t get too shocked – you won’t pay service tax on the entire amount. 67% of the amount charged by the builder is considered to be cost of land, materials, etc. Only the remaining 33% amount is considered as “service” provided.

    Therefore, you would pay 10.3% service tax only on 33% of the amount that you have paid. Thus, the effective rate of tax for you would be about 3.34% of the total amount paid by you.

    What does it mean for you?

    Most of us buy a house through a home loan. We book the house when the builder launches the scheme or when it is under construction, and make the payments based on the stage of the construction.

    Effectively, it means that we make most of the payment before the builder gets the completion certificate! This means that the entire amount paid by us to the builder would be subject to service tax.

    Who pays this tax?

    It would be naive to assume that the builder would absorb this burden and pay the tax. Of course, the onus of paying this tax is on the builder. So, you would not have to go through the hassle of paying it.

    However, ultimately this burden would be transferred to the home buyers in the form of higher price. Thus, its people like you and me who would end up paying this service tax.
    Also, this tax would not be applicable to resale properties, as resale properties would essentially have obtained a completion certificate.

    Applicable Date

    This provision would be applicable from 1st April, 2010.

    2. Service Tax on Preferential Location Services and Internal & External Development of Complexes

    Service tax of 10.3% has also been levied on any payment made by you to the builder for getting a preferential location for your house / flat.

    What does this cover?
    • Any floor rise amount paid for getting an apartment on a higher floor
    • Any amount paid to get an apartment / house with a specific number
    • Any amount paid to get an apartment / house facing a specific amenity, say a swimming pool, lake, park, sea, etc
    • Any amount paid to get an apartment / house facing a specific direction (maybe as per vaastu)

    Also, the service tax has also been levied on any amount spent by the builder for the development of the complex – like building internal roads, paving the garden, etc.

    No service tax on amount paid for parking garage

    Many builders also sell parking space. It has been categorically mentioned in the budget that any amount paid for getting a parking slot allotted would not be subject to service tax.

    Applicable Date

    The date for the applicability of this provision would be notified later. However, in all likelihood, it would be effective from 1st April, 2010.

    Illustration / Example

    Let’s say you are buying an apartment of 1000 sq. feet for Rs. 3,000 per sq. ft. You are also paying a floor rise of Rs. 100 for getting the apartment on the 5th floor. You are also buying a parking space for your car for Rs. 2 Lakhs. Thus, you are paying a total of Rs. 33 Lakhs to the builder.

    Let’s say you have paid the whole amount to the builder by the time the last slab of the apartment is constructed. Thus, you have paid the entire amount before the builder has obtained the completion certificate.

    How much service tax would the builder recover from you?

    • Rs. 2 Lakhs for parking space if not subject to service tax
    • The amount of Rs. 1 Lakh (Rs. 100 per sq. ft. * 1000 sq. ft.) is subject to service tax. Thus, service tax is Rs. 10,300
    • Out of the remaining Rs. 30 Lakhs paid for the house, Rs. 20,10,000 (or 67%) is treated as cost of land and materials, and therefore, does not attract any service tax
    • There is a service tax of 10.3% on the remaining amount of Rs. 9,90,000. This service tax amount is Rs. 1,01,970
    • Thus, the total service tax payable by you is Rs. 1,12,270 (Rs. 10,300 + Rs. 1,01,970)

    ———————————————————————————————————————

    Now service tax is revised to 12.36%,builder may charge service tax on 33% or 40% of Construction cost. Thus, the effective rate of tax for you would be about 4.08% – ((33*12.36)/100) or 4.944% – ((40*12.36)/100)

    Thanks
    Loganathan

  17. Kunal says:

    Hi Ashal,
    I appreciate you contribution to this forum.
    I m interested in buying apmt, and little confused over service tax and vat.
    Builder is showing a calculation of S.T of 12.36% on (25% of Basic+CarPark+Water+Power) and VAT of 4% on Basic+CarPark+Water+Power. Do you know if this is correct? Should Water and Power be included?

    1. Dear Kunal, It’s OK. make sure you are getting the receipts of the payment of VAT & Service Tax from the builder.

      Thanks

      Ashal

      1. Kunal says:

        Thanks Ashal

  18. Ramyabadri says:

    Dear Sir,
    I am planning to go for an apartment, I would like to know the tax calculation,
    cost of property ( 3000*1040) where 1040 is the total sq.ft of the flat = 3120000
    parking charges =200000
    water/EB = 156000
    Maintenance = 25000
    as per builder’s calculation, S.TAx + VAT = 2,78000
    Could you please let me know if Maintenance, car parking charges are included for the S.tax and VAT calculation?
    I am unable to know how he has arrived at this value…
    as per his original calculation he mention 33.3%*12.36%*(costof land+parking charges+maintenace charges+Water/EB charges)

    1. Dear Ramyabadri, the basis is 25% of the cost & not 33.33% as given by your builder. Also Maint. deposit of 25000 Rs. can not be included in the cost of the flat for S.Tax & VAT calculation purpose.

      Thanks

      Ashal

  19. Dear Loganathan, is the money to be paid by cheque for all the mentioned heads? If yes, relax. If no, ask the builder that you ‘ll pay only cheque & no cash & the builder should provide receipt of each cheque pmt.

    Thanks

    Ashal

    1. Loganathan says:

      Dear Ashal, there are two issue,

      1. In sale agreement they have clubbed Service tax & other reimbursement as shown as single component, so there is no clear indication of service tax.
      2. Apart from above figures, I also need to pay registration fee and EB charges additionally.

      In your above reply, you mentioned that, if payment is through cheque no issue. Can you please me it more clear.

      Thanks

      Loganathan

      1. Dear Loganathan,

        1. even if the builder have clubbed all these charges in registration documents, no issue, you can still ask for a break up all the charges on builder’s letter pad.

        2. What I mean was – through cheque payment – it’s a transaction in white where as for cash payment it ‘ll be treated as black money as you can’t prove later on the expenses done by you.

        The white payments ‘ll become handy from taxation point of view when in future you ‘ll sell the house.

        Thanks

        Ashal

        1. Loganathan says:

          Thanks for your reply Ashal.

  20. Loganathan says:

    Dear Mr.Ashal, thanks for immediate reply. But for more clarity i will give actual break-up value which i received form my builder.

    1. Basic Cost (Including land Cost) – 34,68,600
    2. Covered Car Parking – 1,50,000
    3. Club House – 1,00,000
    4. STP/WTP charge – 75,000
    5. Infrastructure / CMDA charge- 49,200
    6. Piped Gas – 25,000
    7. Service tax – 1,73,193
    8. Other Reimbursement – 63,056

    When I ask the builder for service tax calculation they have explained me like this:

    = ((34,68,600 + 1,50,000+1,00,000+49,200+25,000 – 3,64,707)*40%)*12.36%

    Regarding other reimbursement expense they told me it’s like VAT, they are not responding properly about this.

    Please advise me how to proceed further i have made sale agreement, after reading your forum about maxgain i have applied for SBI home loan and recently received the sanctioned letter.

    Thanks
    Loganathan

    1. aravindhan says:

      Hi Loganathan,

      Have you figured out the final calculation. I am in same situation like you with a builder named Vaikund Sundaram, they are unable to provide clear detail on service tax breakup.

      Out of the 6 items below does everything needs to be considered in ST calculation, like Car Park, Club membership, etc

      1. Basic Cost (Including land Cost) – 34,68,600
      2. Covered Car Parking – 1,50,000
      3. Club House – 1,00,000
      4. STP/WTP charge – 75,000
      5. Infrastructure / CMDA charge- 49,200
      6. Piped Gas – 25,000
      7. Service tax – 1,73,193
      8. Other Reimbursement – 63,056

  21. Dear Loganathan, the service tax is charged on the basic value of the flat. For Service Tax calculation 25% of the basic value is considered. For example, if your basic price 40L Rs. The value to be considered for service tax calculation ‘ll be 10L Rs.

    Now as you are already aware that Service Tax rate is 12.36%, hence the service tax chargeable to you = 12.36% of 10L = 123600 Rs.

    Regarding that Other reimbursement fee, please try to know the details for what services/expenses it’s charged from you?

    Thanks

    Ashal

    1. rajeshau3 says:

      Dear Ashal Jauhari,

      I am planning to buy a semi-independant villa (twin villa) near chennai in sriperubalur. The builder’s cost break up is as below :

      1. Land + Construction cost – INR 48,33,900
      2. Club House – INR 1,00,000
      3. EB – 25000, WATER – 25000, Maintenance – 50,000
      4. LEGAL – 25000
      5. DISCOUNT – INR 3,58,009

      TOTAL COST – INR 47,00,891
      Service tax (3.09%) on total cost – INR 1,45,258

      My query:
      1. With new change in service tax act from Jun’12 builders can avail cenvat credit on input material and input services, so do builder really pay above mentioned service charge to goverment?
      2. Should I pay service tax on Legal, EB, WATER, Maintenance which is almost 1,25,000?
      3. They are not mentioning the service tax amount of INR 1,45,258 in construction agreement is it ok? if ok what should be minimum document i should get from builder for payment of service tax

      Appreciate your help in this regard Sir.

      Thanks in Advance
      Rajesh

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