The Finance Act, 2005 has brought within the service tax purview construction of planned residential complexes (more than 12 dwelling units).

Kindly elaborate on the following points:

Date of implementation of the above proposal.

Who will come under the purview of this Act in the case of semi-constructed buildings?

Who will bear the tax burden?

How will the tax be calculated on the registered land value or building value or both?

I recently bought a flat in a building with more than 12 apartments. The registration was completed on February 14, 2005 before the Budget announcement. However, the final instalment for the flat was paid in April 2005. The flat is in the possession of my builder, who is asking me to pay a deposit amount towards tax. Is he justified in demanding this?

A.V.R. Rao,


With effect from June 16, 2005, builders developing housing complexes withmore than 12 residential units come under the purview of the service tax at 10.2 per cent. Your case apparently does not come under its purview. The tax is only on the cost of construction, which excludes material cost. In the case of composite or turnkey contracts, an abatement of 67 per cent is allowed towards cost of land and material, and only 33 per cent of such contract price will come under the service tax net.

Like any other indirect tax, service tax ultimately devolves on the consumer, though the tax itself is on the service provider who is usually reluctant to bear it himself. I am sure that in the wake of the tax on builders, the contracts would invariably now contain a clause passing on this tax to the buyer.

The author is a Delhi-based Chartered Accountant.

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(This article was published in the Business Line print edition dated July 10, 2005)
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