Buyers of Under-Construction Flats may Get Tax Relief

HC says buyers can't be charged service tax on payments for such flats if its total value includes land as well

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 re lation to construction of complex'. They had signed agreements with builder Sethi Buildwell to buy apartments in a group housing project, Sethi Group Max Royal, in Sector 76 of Noida.

Accepting the petitio ners' the court said in the June 3 order that “no service tax under Section 66 of the Act read with Section 65(105)(zzzh) of the Act could be charged in respect of composite contracts such as the ones entered into by the petitioners with the builder“.

The petitioners said that agreements entered into by them with the builder are for purchase of immovable property and the Parliament does not have the legislative competence to levy service tax on such transaction. They also said that “the Act and the rules made thereunder do not provide any machinery for computation of value of services, if any, involved in construction of a complex and, therefore, no such tax can be imposed.“

Their petition referred to previous circulars issued by the Central Board of Excise and Customs (CBEC) which, according to them, clarified that the taxable service under clause (zzzh) did not cover builders who were developing and selling immovable property. A circular dated January 29, 2009 says since the agreement between builder and buyer is in the nature of agreement to sell, under the provisions of the Transfer of Property Act, it does not by itself create any interest in or charge on such property.

The Economic Times, New Delhi, 09 June 2016

Household debt up, but India still lags emerging-market economies: RBI

Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...

CA Online

Search This Blog