SERVICE TAX ON DEVELOPMENT AGREEMENT

[RAVI SONI]

I want to seek your valuable advice regarding chargebility of Service Tax on Development Agreement. I wan to know that a Development Agreement, unless it is for sharing of profits, Service Tax is payable by the Land Owner to the developer. Please help me in this particular point as this is a very vital point for future development agreements.

[Madhukar N Hiregange]

Development agreement can be for development of plots or for construction.

If it is for plots then prior to 1.7.12 there does not appears to be any category to cover. It cannot be under site formation. Post 1.7.12 it could be covered under works contract. However what is the amount representing and the terms of the agreement would  be important.

Dev agreements in future could be for infrastructure dev [ roads, water/ electricity lines] which are done for the municipality/ board who sanctions which could be covered under mega exemption sr no. 12 + other development which could be taxable. If bifurcation exists that maybe considered.

AI Summary

Service tax on development agreements depends on agreement nature and consideration, requiring classification and possible bifurcation of taxable elements. Service tax on a development agreement depends on the agreement's nature, consideration and subject matter. If not a profit sharing arrangement, the land owner is treated as recipient and the developer's services may attract service tax; post the regulatory date, plot development may be classifiable as a works contract. Infrastructure works transferred to sanctioning authorities may qualify for large scale exemption, while other components remain taxable, requiring bifurcation based on contractual terms and amounts.