Service Tax on Construction

[CABALRAM PANDEY]

Dear Professional Colleagues

Please guide me on the following issue:-

A builder/developer is constructing building and starting booking of flats before completion of construction, the activities flows in following manner:

01-01-2010  Date of construction started.

01-01-2011 Date of First Booking of Flat

Stage of completion        Date of construction         date of realisation

4th Floor                        01-04-2012                      31-05-2012 (50 percent of Flat Value)

10th Floor                       01-04-2014                     31-05-2014 (90 percent of Flat Value)

Possession by

Deed of conveyance        01-10-2014                       01-10-2014 (100 percent of Flat Value)

Based on the above please guide me that, what will be the point of taxation for each construction stage, as it is a continuous supply contract. 

  Thanks in advance

Balram Pandey

[Brijesh Verma]

POT shall early of :

1. Invoicing

2. Completion (where completion in case of construction is every such event where customer is obliged to pay)

3. Payment

[YASHAVANTH RM]

Dear Pandey,

The Following method to be used as per Accounting Std. ( AS) 7 (2002).

You can book revenue on accrual basis in case of Income Tax.

You can book revenue on  completion basis for Service Tax as per POT Rules.                                      

                                                                          Year 1 Year 2 Year 3

Initial amount of revenue agreed in contract              9,000 9,000 9,000
Variation                                                              - -    200    200
Total contract revenue                                          9,000 9,200 9,200
Contract costs incurred up to the reporting date      2,093 6,168 8,200
Contract costs to complete                                   5,957 2,032 - -
Total estimated contract costs                             8,050 8,200 8,200
Estimated Profit                                                   950 1,000 1,000
Stage of completion                                              26 percent 74 percent 100 percent

AI Summary

Point of taxation: construction services taxable at the earliest of invoicing, completion obligating payment, or payment receipt. Point of taxation for construction services occurs at the earlier of invoicing, completion (when the customer is obliged to pay), or payment receipt. In continuous construction contracts, each construction stage must be evaluated against these triggers; service tax recognition may follow a completion-based stage-of-completion method per Accounting Standard 7 while income tax may use accrual accounting.