The recent verdict of Delhi High Court to exempt home buyers of under construction flats may bring happiness to thousands of homes buyers as they may get a much needed tax relief.
In a recent verdict the Delhi High Court ruled that the buyers of under construction flats may get tax relief. The HC order may bring happiness to thousands of end-users who purchased flats before July 1, 2012. However, the judgment also says that no service tax can be charged from buyers who have purchased apartments after 2012. The court has also directed the developers to refund the collected service tax with interest rate at 6%.The Delhi High Court bench also noted that “Service tax act 1994” did not provide any method to calculate service tax component when there is property deal between buyers and builders.
What is the current scenario?
- At present, 15% service tax is levied on an under-construction property. The logic is that the builder is offering the service of construction hence buyers need to pay tax on that claimed service.
- Property service tax is paid to government revenue department after collection from buyers.
Reading the fine print–
- It is difficult to determine the value of service in construction as there is no such mechanism laid out in ‘Service Tax Act 1994’.
- The court has directed that service tax can be charged for selection of property, builder may charge for floor rise, since it is a property value addition the developer.
Property developers are buoyed with this development. They see it like a positive step to infuse confidence in this segment. Real estate has been reeling under stagnation for almost two years. Steps like these and others like induction of RERA helps in building buyer and investor confidence sentiment in the segment.
Shekar Muttreja, MD, Cosmic Group, says, “the court’s order to not charge service tax for under construction flats is a move in right direction. Home buyers will have another reason to cheer as this move would lessen their burden. For those who have already paid service tax they will get amount refunded from service tax department. With the exclusion of service tax from properties under construction we are expecting to witness improved market sentiments”.
According to Gaurav Gupta, General Secretary, CREDAI Raj Nagar Extension, “The court’s announcement to exempt under-construction properties from service tax would help buyers as well as builders in a big way. The exemption of service tax on composite contract between builders and buyers and refund of service tax for those who have already paid it with an interest of 6% would reduce their financial burden. We as developers too do not have any issue in refunding the amount if service tax department is ready to repay this amount”.