As per the budget proposal for 2010-11, the finance ministry has suggested service tax on construction and sale of property. The contractor was entitled to claim abatement to the extent of 66.7 per cent of the value of services rendered by him. But recently, the Finance Minister has increased the concession on service tax applicable to construction of residential complexes from 66.7 per cent to 75 per cent of gross value of property, including land value.
Suppose you are buying a flat costing Rs. 50 lakh (cost of land, Rs. 40 lakh, cost of construction, Rs. 10 lakh). As per the 2010 budget, the applicable service tax was supposed to be Rs. 171,495 calculated at 10.3 per cent on 33.3 per cent of property value. With the amendment announced by the Finance Minister, the applicable service tax comes down to Rs. 128,750 calculated at 10.3 per cent on 25 per cent of property value. Thus, the savings will be Rs. 42,745.
The Finance Minister has also declared exemption from service tax for low-cost housing segment (less than Rs. 20 lakh). Suppose you are buying a flat in a smaller city for Rs. 18 lakh (cost of land, Rs. 6 lakh, and cost of construction, Rs. 12 lakh). With the amendment announced by the Finance Minister, there would be no service tax applicable.
The notification will be published in July 2010. Till issue of notification, there will be no service tax for under construction property. Property Buyers can pay amount for property and service tax will not be levied till July 2010. After issue of circular or notification, Service tax will be applicable only for under-construction properties and not for resale property.