No contractor, no service tax in housing ……..Jayaraj Sivan | TNN
Chennai: Putting an end to the confusion over service tax on residential projects, Gautam Bhattacharya, commissioner, service tax, Central Board of Excise and Customs, has clarified that it is not applicable to residential projects as long as the builder or developer does not engage contractors to carry out the work.
It could bring relief to many small and medium projects. Earlier, service tax was levied on all residential projects with more than 12 dwelling units, primarily owing to wrong interpretation of rules. It worked out to 12.36% of the cost of labour or roughly 4.12% of the total cost of construction, excluding the land value. This was a huge burden on home buyers.
In a circular on January 29, Bhattacharya clarified that the sale of a flat by a builder or a promoter or a developer to a buyer did not fall under the ambit of service tax, irrespective of the project size.
Generally, a buyer entrusts construction of the apartment with the promoter through a contract. Therefore, it was treated as a service (not sale) and considered taxable. Challenging this, the Tamil Nadu chapter of the Confederation of Real Estate Developers Association of India, (CREDAI) had approached the service tax commissionerate.
Through the latest order, the commissioner has said even in cases where the ultimate owner enters into a contract for construction of a residential complex with a promoter or builder or developer who is providing service of design, planning and construction and thereafter the ultimate owner uses it for his personal use, service tax is not applicable.
However, if the services of any person like contractor, designer or a similar service provider are received, such a person would be liable to pay service tax.
It would help all builders who carry out construction of their projects on their own, without engaging outside contractors. Even if a builder engages contractors and if an individual contractors annual turn over does not cross Rs 10 lakh, service tax will not be applicable, Bhattacharya said.