Once GST gets implemented, “Payment of service tax on the properties under construction does not arise. It will be replaced with GST,

The Delhi High Court, in a judgement delivered on June 3, 2016, held that the levy of service tax on construction contracts where land is also being transferred is not valid,

High Court held that the service tax is only payable on the value of services and not on the value of land. The mechanism for ascertaining the value of services (by excluding the value of land) involved in such contracts should have been provided either under the Finance Act, 1994, or the Rules issued under the said Act. In absence of any mechanism within the Act or the Rules to exclude the value of land, no service tax can be imposed on consideration of under construction flats wherein the value of land

Is included in sale consideration

Actually the current rate of Service Tax is 3.75% of the cost of the unit.

Government has given abatement of 3/4th of cost of unit as land and goods for construction and only 1/4th of the cost of unit is treated as service. Hence presently most homebuyers are paying 3.75% of cost of unit as service tax (1/4th of 15%).

However there are presumptions about the new GST that GST rate might be set at 18% as many experts back this rate and abatement of land might be only 25% of agreement value as 50% is assumed to be cost of goods and remaining 25% as cost of service. Based on these assumptions the effective GST on under construction property transaction will be 13.5% (3/4th of 18%). Now this rate is significantly high compared to 3.75%. Now you decide what can be done for cost effective.

property is ready to move and currently service tax is 4.5% .

The current rate varies from 3.5% to 9% across the states in India.

Once the GST is effected, then the rates may go as high as 18%