Transfer of a completed immovable propertys

title is exempt from service tax

For long there was a debate around when a developer should charge service tax to a home buyer
while selling the propertywhen the property is being constructed, or even after it is finished
and occupancy certificates received. Resolving the issue, the Ministry of Finance issued a
circular on 26 October, stating that developers should not levy service tax on sale of flats and
apartments once occupancy certificate is received but completion certificate is not. In its
statement, the ministry stated, ...that sale of flats/dwellings, etc., where the entire consideration
is received after issue of occupancy certificate by Brihanmumbai Municipal Corporation (BMC),
leading to a mere transfer of title in immovable property, falls outside the definition of Service
provided in Section 65B (44) of the Finance Act, 1994, and is therefore, not taxable. In many
projects, the developer may get the occupation certificate phase-wise, and the completion
certificate once the whole project is completed.
Such disputes were more common in the jurisdiction of Municipal Corporation of Greater
Mumbai, i.e., BMC. Therefore, the ministry specially conveyed this clarification to the tax
authorities in Mumbai on 23 October 2015.
WHEN DO YOU NEED TO PAY?
If you are buying an under-construction property from a developer, in such a case, the developer
is deemed or considered to be the provider of construction services to the home buyer. So,
service tax is charged to the home buyer on the cost of construction. It is not charged on the
entire value of the property, but only on the cost of construction; land cost is excluded.
Within a residential project or a building, it is difficult to segregate the construction cost of a
single unit. Therefore, for the purpose of calculation, 25% of the gross value of an underconstruction unit is considered as the cost of construction and service tax is charged on that
amount. If the gross property value is higher than Rs.1 crore, service tax will be charged on 30%
of the gross value. As service tax is charged only on the construction cost, the effective rate of
service tax on the entire value of a property below Rs.1 crore is 3.50% (14% on 25% of property
value) and 4.2% (14% on 30% of property value) for the a property valued aboveRs.1 crore.
OTHER COSTS THAT ATTRACT SERVICE TAX
Apart from the basic cost of the unit, a home buyer also has to pay additional charges such as for
preferential location, club membership, rain water harvesting and others. All such charges are

subject to service tax. If a home buyer takes services of a property agent, valuer, and/or lawyer,
their fees, too, attracts service tax. If taking a home loan, service tax is charged on the home loan
processing fee. Home insurance premium, too, has it.
WHAT IS EXEMPT FROM SERVICE TAX?
A home buyer need not pay service tax on charges related to external and internal development
(EDC and IDC) as these are collected by the developer and paid to the government authority for
the related service provided by them. Affordable housing or low-cost housing where the carpet
area is less than 60 sq. mt. (about 640 sq. ft) per house in approved housing projects is exempt
from service tax.