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Thursday, 9 June 2016

Buyers of under-construction flats may get tax relief

NEW DELHI: The Delhi High Court has said that home buyers cannot be charged service tax on payments made towards purchase of under construction apartments from builders if the total value of the apartment includes the land value. However, service tax can still be levied on preferential location charges (PLC) that builders charge from buyers. The court also said that if the developer has already collected service tax, buyers would be refunded the amount with 6%
rate of interest by the revenue department of the government of India. Since the amendment introduced by the Finance Act of 2010, the government charges service tax on buyers of apartments in under construction projects. Service tax is levied only on 25% of the total value of the apartment due to a 75% abatement that is allowed. So at 15% service tax applicable from June 1 this year, the buyer pays service tax of 3.75% on the total value of the apartment. Vaibhav Gaggar, partner at law firm Gaggar & Associates, said all home buyers will be entitled to seek a refund of service tax component that has been charged. "Developers in-turn will be entitled to seek a refund from the government," he said. He, however, also said that this order is likely to be challenged in the Supreme Court by the government. Builders point out that they pay service tax for all services such as design, contracting, legal and others while constructing a housing project. They get an offset for this amount through the service tax collected from buyers. Now they will have to treat it as a cost and pass it on to home buyers. "If we are not collecting service tax from buyers, it would mean passing on our service tax burden to buyers," said Ashish Sarin , CEO of Gurgaon-based builder Alpha Corp Development. The court was hearing a case filed by home buyers Suresh Kumar Bansal and Anuj Goyal against the government of India in which the duo was aggrieved by the levy of service tax on services 'in relation to construction of complex'. They had signed agreements with builder Sethi Buildwell BSE 1.65 %to buy apartments in a group housing project, Sethi Group Max Royal, in Sector 76 of Noida. 

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