Buying a property are often a tedious job and more so if one isn't really conversant in the varied costs he has got to buy his home. Service tax and VAT are only one of the various costs which a buyer has got to pay so as to have his dream home. Service rate is set by the central government while VAT varies from state to state.

More importantly, Service Tax and VAT (value added tax) are paid just for under construction properties. And Land cost is exempted from both these charges.

So, what is really an under construction property?

A property is termed “under construction” till the builder receives a “completion certificate” from the relevant authorities. If the entire amount for the property purchase is paid after the receipt of a completion certificate, there would be no service tax levied on the purchase of the property.

Service Tax Rate

Service tax is essentially payable on services provided by the service provider. The service provider collects the tax from the consumer and deposits the same to the government.

Effective 1st June 2015, the government levied a uniform service tax of 14 per cent on all services availed in India. Thus, for all under construction properties below Rs 1 crore or below 2000 sq. ft. area, the service tax applicable is 14 per cent of 25 per cent of the entire agreement value. But for under construction properties that exceed or adequate to Rs 1 crore or are over 2000 sq. ft. area, the service tax applicable is 14 per cent of the 30 per cent of the entire agreement value.

Exemption from payment of service tax on construction

An exemption from payment of service tax on under construction property is allowed just in case of the subsequent cases:

Construction of single residential unit
Construction of low cost houses up to carpet area of 60 sq. meter
Single residential unit is defined as a self-contained residential unit designed to be used by one family only.

How to calculate service tax on under construction Property?

When you buy a house, you pay for two components:

Value of land
Construction offered by the developer (service provider)
Service tax is payable only in case of construction services and not on the value of land. In cases where it becomes difficult to work out cost of immovable property and repair cost separately, government has come up with the availability of abatement scheme where an amount is levied on the total amount.

VAT charges

This charge varies from state to state. In Karnataka, the VAT is currently 5.5 % of the construction related services.

Did you know!

VAT and repair Tax aren't applicable on ready-to-move-in properties. For instance, if you've got bought a property when it's almost ready-for possession, you want to concede to postpone your sale agreement to be signed after completion certificate is issued. If you are doing so, then you'll be saved from paying these charges.
Builder has got to issue 2 separate payment receipts i.e. one each for VAT (with Tax Invoice no and TIN) and repair Tax (with Tax Invoice No and ST registration no).
Service Tax isn't applicable on single residential unit i.e. independent house, villa or bungalow.
Service Tax is not applicable for low cost housing with carpet area of up to 60 sq. m.