Your under-construction flat could finally provide you some relief

The Delhi High Court has come out with a new rule which would provide some tax relief to home buyers. The court has said that home buyers cannot be charged service tax on payments that they have done for under construction apartments from builders in case the total value of the apartment includes the land value.

However, the builders can still charge service tax on preferential location charges (PLC).

In case the developer has already collected service tax from the buyers, they will be getting the refund from the amount along with 6% ROI by the revenue department of the government of India. Developers in-turn can seek a refund from the government.

As of now, the government charges service tax on buyers of apartments in under construction projects only on 25% of the total value of the apartment, because a 75% abatement is allowed. Therefore, at 15% service tax applicable from June 1 this year, the buyer would have to pay a service tax of 3.75% on the total value of the apartment.

However, the government can challenge the rule in the Supreme Court.

Builders are of the view that not collecting service tax from buyers would mean passing on their service tax burden to buyers. This, because they pay service tax for all services such as design, contracting, legal and others while constructing a housing project, for which they get an offset through the service tax that buyers pay. With the new rule, they will have to treat it as a cost and pass it on to home buyers.

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