1. Service Tax issues on Construction of Residential Complex

2. Types of Services in Real Estate Transactions
Construction Service
Works Contract Service
Architect Service
Auction of Property
Engineering Service
Erection, Commissioning & Installation Service
Interior Decorator
Real Estate Agent & Consultants
Management Repair and Maintenance
Site Preparation Service
Renting of Immovable Property
Commercial
Residential

3. Types of Service Providers in Real Estate Transactions
Builders
Own land, own Construction
Sale
Developer
Develop for Land Owner
Joint Agreement
Contractor
Construction for Builders
Works Contract
Following Type of activities by above Service Providers
Construction of Flats/ Offices/ Shops
Developing Residential Townships.
Construction of independent Villas.
Sale of Plots (Developed/ Undeveloped)

4. Abatement from Service Taxin
Real Estate Sector

5. Abatement of Service Tax in Real Estate Sector
Description
Abatement
Taxable Value
CENVAT CREDIT AVAILABILITY
INPUTS
INPUT SERVICES
CAPITAL GOODS
Construction of a complex related services falling u/s 66E(b)-
(a) Residential Unit :-
(i) with Carpet Area less than 2000 sq ft. &
(ii) Amount Charged less than Rs.1 Crore for each unit.
[Both conditions must be satisfied]
75%
25% NO
YES
(b) Any other case :-
(i) Commercial units, OR
(ii) Residential units having Carpet Area of 2000 sq ft. or more, OR
(ii) Residential units priced above Rs.1 Crore or more.
[Any of the above cases (i) to (iii) ]
70%
30%

6. Valuation of Services
Related to
Real Estate Transactions

7. Valuation of Services related to Real Estate Transactions
Valuation of Construction Service
Gross Amount charged (including value of Land) + FMV of goods / services received from service recipient (excluding taxes) - amount charged by service recipient (excluding taxes).
Valuation of Works Contract Service
As Per Rule 2A of Service Tax (Determination of Value) Rules, 2006
Other Gross Amount Charged

8. Works Contract:
Valuation & Taxation

9. Works Contract: Valuation & Taxation
What is Works Contract
For execution of a contract
Transfer of property in goods on which sale tax is leviable and;
such contract is for the purpose of carrying out
Construction
Installation
Repair
Maintenance
Completion
Erection
Commissioning
Fitting out
Renovation &
Alteration
In Relation of :
any movable or immovable property or
for carrying out any other similar activity or
a part thereof in relation to such property;

10. Works Contract: Valuation & Taxation Specified Taxable Percentage
Service Tax Determination of Value Rules, 2006
Rule 2A:
Determination of Value of Service Portion in the Execution of a Works Contract
Option - I
Gross amount Charged
Less:
Value of property in goods transferred,
VAT
Option – II
Total Amount Charged X
Specified Taxable Percentage

11. Works Contract: Valuation & Taxation
Rule 2A : Option – I
Gross Amount charged (GAC) for Works Contract xxxxx
Less:
Value of property transferred in goods xxx
Taxable Value xxxx
Note:
VAT or Sales Tax shall be excluded from GAC.
Value of transfer of property in goods shall be the value taken for VAT purposes.
Value of Works Contract Shall include:
Labour charges
Payment to sub-contractor for labour and services;
Planning, designing and architect’s fees;
Hire charges for machinery and tools
Cost of Consumables such as water, electricity, fuel
Cost of establishment of the contractor relatable to supply of labour and services;
Other similar expenses; and
Profit earned by the service provider relatable to supply of labour and services.

12. Works Contract: Valuation & Taxation
Rule 2A : Option – II
Where Value Cannot be ascertained as per Option-I then value shall be worked out as under:
S. No.
Nature of contract
Taxable Value 1.
Execution of Original Works
40% 2.
Execution of contract for maintenance, repair, reconditioning or servicing of any goods
70% 3.
Other works contracts not covered by 1 & 2 above (including completion and finishing services such as glazing, plastering, installation of electrical fittings of an immovable property).
60%
1. Original works means
All new constructions;
All types of additions and alterations to abandoned or damaged structures to make them workable;
Erection, commissioning or installation of plant, machinery or equipment whether pre-fabricated or otherwise.
2. Total amount means the gross amount charged plus the value of any material supplied under the same contract or any other contract. Where supply is free of cost, value shall be determined on FMV.
3. No input tax credit of excise duty paid on goods, property transferred in execution of works contract. However taxes paid on capital goods and input services will be available.

13. 50% 50% Works Contract: Valuation & Taxation Works Contract Service
Service Tax Liability under Partial Reverse Charge
Works Contract Service
Service Provider
Service Recipient
Individual
HUF
Firm
AOP
Business Entity Registered as Body Corporate
Service
Liability to Deposit Service Tax
50%
50%

14. CENVAT Credit in
Real Estate Transactions

15. Basic rule of CENVAT Credit for service provider
Capital Goods
Provider of Output Service can avail CENVAT Credit
Used
for Providing Output Service
Inputs
Input Services

16. Basic rule of CENVAT Credit for service provider
Requirement for availing CENVAT Credit
Input Services & Capital Goods are used for provision of taxable service
Possession of Proper duty paying documents
Documents must contain all particulars as per Rule 4A of ST Rules, 1994
CENVAT Credit on capital Goods – upto 50% in C/Y, balance 50% in next year.

17. Basic rule of CENVAT Credit for service provider
On the basis of Invoice issued by Service Provider
Joint Charge Quantum of CENVAT Credit available
On the basis of Challan

18. Service Tax Issues in
Real Estate Transactions

19. Service Tax Issues in Real Estate Transactions
Service of Vehicle Parking
General Public
Private
Taxable
Rental
Sale of Space
Cover under Mega Exemption
Taxable under renting
Construction service (3.09% / 3.708%)
Covered vehicle parking / open vehicle parking

20. Service Tax Issues in Real Estate Transactions
Issue of Preferential Location Charges
Any location having extra advantage which attracts extra payment over and above the basic sale price.
Examples:
Direction
Sea Facing, Park Facing, Corner Flat
Floor
First Floor, Top Floor
Vastu
Having the Bed Room in a Particular Direction
Number
Lucky Numbers
Status of Taxability
No Separate consideration
Separate Consideration
Covered by construction service
12.36% on Gross Amount
No abatement

21. Service Tax Issues in Real Estate Transactions
Issue of Surrender/ Cancellation/Transfer/Buy-Back of Flat by Buyer to another person before its completion
Status of Taxability
Builder/Developer would be eligible for adjustment of excess payment under rule 6(3) of the Service Tax Rules, 1994 to the extent he has refunded the original amount.
If the builder/developer resells the flat before the issuance of completion certificate, again tax liability would arise.
Cancellation Charges : Cancellation Charges would fall under declared service Section 66E (e) of Finance Act, 1994 i.e. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act, these charges will attract Service Tax at the full rate w.e.f
Transfer of flat before its completion – Mere transfer of right by the previous owner to subsequent owner. No service is provided.
Buy-back of flat – No service. Builder can make adjustment of
service tax u/r 6(3).

22. Service Tax Issues in Real Estate Transactions
Issue of Assured Return
Assured Returns are given by the builders to the investor who invest in their under construction project & they are mostly for commercial projects.
Mode of Payment :
Give monthly returns to the investors on the amount paid by the investor as down payment by means of post dated cheques till such time the building is ready.
Service Tax implications of Assured Return-
In case of Builder:- It is an expenses for builder- No service tax.
In case of customer :- Assured return represents a consideration for providing services by way of extending deposits/ loans / advances. Covered by Negative List of Services (66D(n)(i)). Hence not taxable.

23. Service Tax Issues in Real Estate Transactions
Issue of Administrative Charges/ Transfer Charges / Restoration Charges
Status of Taxability
Prior to
On or after
Department’s view that it is taxable under “Real Estate agent’s service”.
Matter sub-judice.
Any activity carried out by a person for another for consideration falls within the ambit of term “Service” – Full Rate 12.36%

24. Service Tax Issues in Real Estate Transactions
CENVAT Credit availed on Brokerage invoice – Later on Flat cancelled by the buyer.
Status of Taxability
Brokerage amount not recoverable from broker.
Brokerage amount recoverable from broker.
CENVAT Credit availed need not be reversed.
Reverse CENVAT Credit availed.

25. Service Tax Issues in Real Estate Transactions
Reverse Charge Issues
There is no exemption limit in the case of Reverse Charge. Even Re.1/- liability is to be discharged
Even if the SP is not registered with department than RC liability is to be discharged by SR.
POT is the date of payment to input Service provider, provided the payment is made within 6 months from the date of invoice.

26. Service Tax Issues in Real Estate Transactions
Other Issues
Interest Free Maintenance Security (IFMS) – 12.36% if non refundable otherwise NIL rate.
Club Membership Fees 12.36%.
Power Backup 3.09% / 3.708% as applicable.
EEC / FFC 3.09% / 3.708% as applicable.
Lease Rent not taxable if recovered from buyer on actual payment basis otherwise fully taxable.

27. Service Tax Issues in Real Estate Transactions
Other Issues
Interest income on delayed payment from Customers: No service Tax.
Transfer Charges: Full rate of Service Tax.
Other Charges 425/- per sq ft like (Lease Rent / Car Parking Charges / Club Membership / Power back up / EEC / FFC / etc) full rate 12.36%.

28. Knowledge Speaks ,
But Wisdom Listens