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Service tax on builders dated 01.08.2006
Clarification on applicability of service tax on real estate developers /
builders – Regarding.
Please refer to your letter dated 21.06.06 on the above subject.
2. I have been directed to state the following relating to levy of service tax
on “construction of complex” service falling under section 65(105)(zzzh) and
“commercial or industrial construction” service falling under section
65(105)(zzq) of the Finance Act, 1994:
| Sr. No. | Issue | Legal Position |
|---|---|---|
| 1. | Is service tax applicable on Builder, Promoter or Developer who builds a residential complex with the services of his own staff and employing direct labour or petty labour contractors whose total bill does not increase 4.0 lacs in one F/Y? | In a case where the builder, promoter or developer builds a residential
complex, having more than 12 residential units, by engaging a contractor for
construction of such residential complex, the contractor shall be liable to
pay service tax on the gross amount charged for the construction services
provided, to the builder / promoter / developer under ‘construction of
complex’ service falling under section 65(105)(zzzh) of the Finance Act,
1994. If no other person is engaged for construction work and the builder / promoter / developer undertakes construction work on his own without engaging the services of any other person, then in such cases in the absence of service provider and service recipient relationship, the question of providing taxable service to any person by any other person does not arise. Service tax exemption for small service providers upto an aggregate value of taxable services of Rs. 4 lakh provided in any financial year vide notification No. 6/2005-Service Tax dated 01.03.05 is applicable for ‘construction of complex’ service also. |
| 2. | Again will service tax be applicable on the same, in case he constructs commercial complex for himself for putting it on rent or sale? | Commercial complex does not fall within the scope of “residential complex intended for personal use”. Hence, service provided for construction of commercial complex is leviable to service tax. |
| 3. | Will the construction of an individual house or a bungalow meant for residence of an individual fall in purview of service tax, is so, whose responsibility is there for payment? | Clarified vide F. No. B1/6/2005-TRU dated 27.07.05, that residential complex constructed by an individual, intended for personal use as residence and constructed by directly availing services of a construction service provider, is not liable to service tax. |
| 4. | Is payment of service tax a responsibility of service provider or of whom the service is provided? | As per section 68 of the said Act, in case of ‘construction of complex’
service falling under section 65(105)(zzzh) and ‘commercial or industrial
construction’ service falling under section 65(105)(zzq) of the said Act,
every person providing taxable service to any person shall be liable to pay
service tax. As per section 66A of the said Act, if the service is provided from outside India to a person in India, then in such cases service tax is required to be paid by the recipient of such service. |
| 5. | If it is applicable on the Real Estate Developers, a detailed guideline of tax calculation and date from which it will be applicable. If it is from retrospective effect, and the service provider has left the work and no payment is due for him, who will pay? | Notification No. 1/2006-Service Tax dated 01.03.06 provides for levy of service tax on 33% of the gross amount charged for the services provided or to be provided, subject to fulfillment of the conditions specified in the said notification. Service tax is leviable on,-(i) ‘commercial or industrial construction’ service falling under section 65(105)(zzq) with effect from 10.09.04, and(ii) ‘construction of complex’ service falling under section 65(105)(zzzh) with effect from 16.06.05. |
3. For any further clarifications, you may contact the jurisdictional officers
with relevant facts, for appropriate guidance.
F. No. 332/35/2006 – TRU
(G.G. Pai)
Under Secretary (TRU)