• Tax on landlord's flat

Hi,

I have purchased a flat from land-lord's portation of the flats in April 2016@Hyderabad. The builder has completed three towers and the buyers are staying there from last 2 years, but the project is not completed and hence builder does not applied for completion certificate. My flat is ready to move. The builder is asking for ST and MT on the total value @5.16%. 
Please advice
- Is service tax applicable on land-lord's share
- if yes, what would be rate
- Does VAT applicable on this
- Landlord sold the property at lower rate then builder's prevailing rate. But, for Tax purposes, builder is considering the total price as per builder's rate. Is it correct?
Asked 3 months ago in Property Law from Hyderabad, Telangana
Religion: Hindu
The buyer has to pay ST on the purchase value from the landowner and the landowner will deposit the same in the govt account.

2) ask for the landowner to provide his service tax registration number or take receipt from him and that receipt must have service tax registration number

3) VAT is applicable on material costs 

4)even if landlord sold property at lower rate fpr tax purposes builder will consider price as per builder rate 
Ajay Sethi
Advocate, Mumbai
23165 Answers
1216 Consultations
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Service tax is levied only on 25% of the total value of the apartment due to a 75% abatement that is allowed. So at 15% service tax applicable from June 1 this year, the buyer pays service tax of 3.75% on the total value of the apartment. 



2) if total project cost is apportioned flat wise then there are 3 cost components of any under construction flat. These 3 cost heads are Land Cost (approx 35%), Material Cost (approx 40%) and Labour + Service Cost (approx 25%

3) VAT is applicable only on Material cost. it is for the builder to give the details of material cost incurred on project 
Ajay Sethi
Advocate, Mumbai
23165 Answers
1216 Consultations
5.0 on 5.0
A report from The Delhi High Court has ruled that no service tax can be levied in respect of the agreements entered into between buyers and builders for flats in an under-construction building in a housing project.
The Bench said the government shall examine whether the builder in this case has collected any service tax from the petitioners and if such amount has been deposited with it, the money shall be refunded to them with 6 per cent interest.
Regarding service tax levied on preferential location, the Bench said, “we do not find any merit in the contention that there is no element of service involved in the preferential location charges levied by a builder.”
The Bench noted that service tax cannot be levied on the value of undivided share of land acquired by a buyer of a dwelling unit or on value of goods which were incorporated in the project by a developer.
It also said there was no “machinery provision” to ascertain the service element involved in the composite contract.
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 such consideration 
This judgement is widely accepted across the country. 
ut,
Till the time the Supreme Court decides the said issue, ambiguity regards levy of service tax on such contracts will exist despite Delhi High Court's decision. Taking note of the observations of High Court, Central Government may make suitable amendments in the service tax law so as to insert a proper mechanism for ascertaining the value of service portion in such contracts. 
Thus, inspite of favourable judgment of the High Court, possibility of relief to be extended to the home buyers looks challenging.  .. 

T Kalaiselvan
Advocate, Vellore
13964 Answers
127 Consultations
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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.
T Kalaiselvan
Advocate, Vellore
13964 Answers
127 Consultations
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1. The buyer is liable to pay Service Tax to the builder at the time of purchase of property, which the builder will in turn has to deposit with the govt, whereas if the builder does not collect Service Tax separately, it would imply that the amount paid by the buyer is inclusive of Service Tax. If payments are made after the completion certificate is given, then no service tax is payable. Hence if a property is under construction and you as a buyer pay a booking amount, this is considered payment towards sale consideration before completion certificate is given, and hence you will be liable to pay service tax at the rate of 10.30% of 25% of the sale value i.e. 2.575% of sale value.

2. VAT liability only arises upon completion of sale and not before the title of property is transferred to the buyer.
Ashish Davessar
Advocate, Jaipur
18088 Answers
447 Consultations
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