What would be the rate of Service tax and how should we derive the material cost for VAT calculation
Service Tax is levied by the Central government on the construction services offered by the developers to buyers. At present, the Service Tax rate in India is 15 per cent.
The basic cost of the property that you pay includes the cost of land and construction. Service tax is applied only on the construction component.
However, with effect from April 1, 2016, the government (vide amendment to notification No. 26/2012-ST), has standardised the abatement "for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions" at a uniform 70 per cent. This now brings the effective service tax on residential property to 4.5 per cent.
VAT is levied on the sale of goods (movable properties). For any sale to attract VAT, it should involve a transfer of goods from one person to another. In the case of under-construction properties, it is the transfer of ownership rights from the developer to the buyer in the form of a sale agreement, in select states. This tax is governed by the ‘works contract’ in the VAT law. For instance, VAT is charged at the rate of one per cent of 'agreement value' in Mumbai and Pune and five per cent in Bangalore, but there is no VAT levied on apartments purchased in Noida, Chennai, and Kolkata.