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Service Tax on under construction property is levied on services provided by builders or real estate developers or any other person, where building complexes, civil structure or part thereof are offered for sale but payment is received before the issuance of completion certificate by a competent authority.
At the time of sale of property, the amount paid by the purchaser to the Building is for:-
1. Value of land
2. Construction services provided by builder/developer
Service Tax can only be levied on services and not on sale of goods/immovable property & therefore in the above service tax won’t be levied on the value of land and would only be levied on the construction services provided by builder/developer as per the rate in force which currently is 14.5%.
Service tax on construction would be levied as per the force on the total value of services provided by builder/ developer provided the purchase price of land and the value of construction services are show separately in the invoice.
In cases where it is difficult to show the cost of goods/immovable property and the cost of services separately, the govt. issues and abatement scheme wherein tax levied on a small proportion of the total amount. Abatement scheme has also been announced for the services of construction of building, An abatement of 75% is allowed and service tax would be levied only on 25% of the total purchase price (incl. of price paid for Land).