Term Of The Day: Service Tax

The central government of India levies service tax on services provided.

PropTiger Explains Service Tax

In real estate, service tax is levied on the services provided by real estate developers and builders on property that is under construction. The finance minister had recently raised service tax from 12.36% to 14%. Service tax is levied on services and not on goods or immovable property. It is not levied on the value of the land.

The government calculates service tax on property under construction as 25% of the gross value of the property if it is lower than Rs 1 crore. Earlier, this was 3.09% (12.36*25/100) of the gross value of the property. But, after the service tax hike, it has risen to 3.50% (14*25/100).

If the gross value of a property in India is greater than Rs 1 crore, the service tax is 30% of the gross value of the property. Earlier, this was 3.71% (12.36*30/100) of the gross value of the property. After the service tax hike, it has risen to 4.2% (14*30/100) of the gross value of the property.

The hike in service tax is expected to raise the price of real estate in India, and other services provided in the sector. Homes are expected to become costlier too. But, you will be exempted from service tax if your home is a single residential unit, or if it is a low cost home house than 60 sq mt or 646 sq ft.

You will have to pay service tax on processing charges and other costs when you take a home loan. Service tax will also be levied on car parking services and other services that you benefit from, when you live in an apartment in a residential complex.

Many home buyers, however, do not take service tax costs into account when they are budgeting their expenditure on their home. If you buy a fully constructed flat, you would not have to pay service tax on it. But, of course, such flats command a higher price.

Check out PropGuide's comprehensive guide to real estate terms here.

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