Ser­vice tax on free area given to mem­bers of so­ci­ety in re­de­vel­op­ment project

Accommodation Times - - Editorial - By CA Pathik Shah

In Mumbai, many build­ing are be­com­ing older than 35 to 40 years and such build­ing re­quire re­de­vel­op­ment. Also due to short­age of land, ris­ing pop­u­la­tion in­no­va­tive con­cept of re­de­vel­op­ment of old prop­er­ties has brought in Mumbai. In such re­de­vel­op­ment, so­ci­ety ap­points de­vel­oper and de­vel­oper con­struct new flats with mod­ern ameni­ties. Mem­bers of so­ci­ety gets newly con­structed flat free of cost and also get rent al­lowances, cor­pus and other al­lowances. Ac­cord­ingly such re­de­vel­op­ment trans­ac­tion is barter trans­ac­tion be­tween so­ci­ety/ mem­bers and de­vel­oper. Prior to 1st July, 2012, The Cen­tral Board of Ex­cise and Cus­toms (CBEC), vide their cir­cu­lar has clar­i­fied that re-con­struc­tion un­der­taken by a build­ing so­ci­ety by di­rectly en­gag­ing a builder/ de­vel­oper will not be charge­able to Ser­vice tax as it is meant for the per­sonal use of the so­ci­ety/ its mem­bers. How­ever, from 1st July, 2012, In new ser­vice tax leg­is­la­tion, if any ac­tiv­ity car­ried out by a per­son for another for con­sid­er­a­tion and in­cludes a de­clared ser­vice but not fall­ing in neg­a­tive list of ser­vice then such ac­tiv­ity would be li­able for ser­vice tax. In case of re­de­vel­op­ment, de­vel­oper pro­vides ser­vice of con­struc­tion of flat and de­vel­oper re­ceives right for con­struc­tion of ad­di­tional saleable area which de­vel­oper can sale to third party. In such case, such re­con­struc­tion ac­tiv­ity pro­vided by de­vel­oper to so­ci­ety mem­bers would ful­fill cri­te­ria of def­i­ni­tion of ser­vice. Hence, such con­struc­tion ser­vice pro­vided by de­vel­oper to so­ci­ety mem­bers and mem­bers re­ceives free of cost area would be li­able for ser­vice tax. The Ma­ha­rash­tra Cham­ber of Hous­ing In­dus­try (MCHI) has sought clar­i­fi­ca­tion from the Ser­vice Tax Com­mis­sioner, Mumbai-I on the is­sue whether Builders/De­vel­op­ers are li­able to Ser­vice tax in re­spect of re­hab flats/ units al­lot­ted to so­ci­ety mem­bers in re­de­vel­op­ment project. The Com­mis­sioner, vide his let­ter F. No. V/ ST- I/ Tech- II/ 463/ 11 dated 31- 082012, clar­i­fied that Ser­vice tax is levi­able on con­struc­tion of such re­hab flats/units/ free of cost area re­ceived by mem­bers. In such case, de­vel­op­ers have to pay ser­vice tax @ 4.944% on ex­e­cu­tion of de­vel­op­ment agree­ment with so­ci­ety for re­de­vel­op­ment of build­ing. The value of de­vel­op­ment rights which is con­sid­er­a­tion re­ceived in kind by builder for con­struc­tion of flats to mem­bers should be taken at stamp duty val­u­a­tion. Such value would be li­able to ser­vice tax @ 4.944% of value of de­vel­op­ment rights.

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