Service Tax on Basic Cost, Corpus Fund, etc

POSTED BY Kaushik G ON March 31, 2013 2:03 am COMMENTS (8)

Hello,

1. I went through some similar posts, but just wanted to clarify. A builder I came across is charging 4.95% Service Tax on Basic Cost (i.e. Construction Cost + Car Parking) which is apparently 12.36% of 40%. Any idea why this might be so? I saw some of your replies which said that it should only be 12.36% of 25% and NOT 40%.

2. Can the builder charge Service Tax on the Corpus Fund being collected, considering there is no “Service” per se rendered for it?

3. What can all be included in the Basic Cost while calculating service tax? While the builder has listed basic cost as land cost + construction cost, he himself has included Car Parking charge while calculating the Service Tax.

4. How can I explicitly ask the builder about the CENVAT credit for Capital goods purchased? What if he tells me he has not/cannot avail of it? There is no way for me to verify this right?

5. Do you know if VAT is applicable for construction in TN and if so, how much?

Thanks a lot!

8 replies on this article “Service Tax on Basic Cost, Corpus Fund, etc”

  1. Kaushik G says:

    Hi Ashal,
    Just checking if you have any answers to the questions I asked above.

    Thanks!

  2. Kaushik G says:

    Thanks Ashal. A couple more follow-up questions –
    1. Is the service tax strictly on the basis of what the builder has said (i.e. strictly linked to the amount of stamp duty paid for registration) or do I have the option to ask him to charge service tax for the *entire* consideration (which receives 75% abatement) as opposed to service tax for the land cost alone (which receives only 60% abatement).
    Why I ask this is because service tax on entire consideration (with 75% abatement) works out still cheaper than service tax on basic cost alone (with 60% abatement).
    2. One more question – if I were to file an RTI to get this information, which would be the best department for me to contact – would it be the Commercial Taxes Department or the Housing & Urban Development Department?

    Regards,
    Kaushik

  3. Dear Kaushik, yes your builder or developer is right.

    Thanks

    Ashal

  4. Kaushik G says:

    Hi Ashal,
    This is the reply from the builder for the Service Tax question –

    “The service tax rebate of 75% is available only for those who pay the stamp duty on the entire consideration as done in the other states like Karnataka and in Tamil Nadu only UDS value of the land is registered and separate agreement were entered for construction purpose and in such cases only 67% abatement is allowed and hence the company was collecting 33% of service tax in respect of construction cost. The particular clause (67%) has been removed from 1st July 2012 . Hence the only option is to go under construction services where 60% abatement can be availed or else we have to pay the entire 12.36%.”

    Is he right? What is your take?

  5. Dear kaushik, please check the below link, where it’s clearly written that it ‘ll be 25% of the valuation in your case.

    http://www.caclubindia.com/articles/service-tax-and-vat-on-under-construction-flat-unit-14745.asp#.UVe96BdHI8U

    Thanks

    Ashal

  6. Kaushik G says:

    Hi Ashal,
    Thanks a lot for your patient, detailed & prompt replies. That clarified a lot of things for me.
    Btw, could you just confirm the 1st point – about service tax on 25% of the property?
    Wrt going ahead with the property, I have got a good deal as far as rate of the property is concerned, and hence, even if I dont get the CENVAT credit (which I’m guessing would amount to a few ten thousands) I’ll go ahead with it.
    However, wrt the 1st point of service tax charged on 25% or 40%, I am yet to take a call on it since the difference is coming to more than a lakh. After getting these clarifications, I will enquire with the builder about his pov and then take a call.

    Thanks again,
    Kaushik

  7. dear Kaushik, on a personal note, I want to know, if your builder does not co-operate with you on Service Tax & VAT issue, ‘ll you still purchase your property in the same building or ;ll skip the property?

    Thanks

    Ashal

  8. Dear Kaushik, I’m trying to answer your queries.

    1. Car parking can not be included in the Service Tax cost as the builder is not arranging car parking from it’s pocket. The car parking is provided on the very same land where the building is situated. So the basic construction cost is liable to service tax not the car parking amount.

    2. The corpus fund can not be liable for service tax. As no service is here.

    3. Car parking can not be added for service tax calculation.

    4. If your builder does not co-operate you on this CenVAT thing, I can not comment. You w’d have to make your own way into this.

    5. Please check the link to know exact VAT rate in Tamilnadu.

    http://www.tnvat.gov.in/English/vatact_231206.pdf

    thanks

    Ashal

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