Taxes for building construction contracts

[Jagadishwaran Guruswamy]

Dear Sirs,

We are quoting for construction of 10500 sft private commercial building in Bangalore. The contracts and payments will be routed through our company.

May I request the members to please advice what are the taxes that are applicable under building construction services.

Thank you in advance.


Regards,

[satbir singhwahi]

SERVICE TAX @14% APPLICABLE AS PER VALUATION RULE 2A I.E. 40% * 14 %

[YAGAY andSUN]

In addition to above reply following taxes/Laws would also be applicable.

1. Building construction Cess 1% on the total value of such contract.
2. Works contract tax ( Please check State Specific VAT laws).
3. Environment clearances
4. Local Municipal taxes/clearance
5. Electricity laws etc

[bhart b sharma]

Post 1.6.07, CBEC instruction no. B1/16/2007-TRU dated 22.5.2007 states that “contracts which are treated as works contract for the purpose of levy of VAT/sales tax shall also be treated as works contract for the purpose of levy of service tax.” Earlier category of “Commercial or industrial construction’ under Section 65(25b)Finance Act, 1994 existed which continues in view of Large Bench judgment in case of Larsen and Toubro  2015 (3) TMI 748 - CESTAT NEW DELHI (LB) [2015 (38) S.T.R. 266 (Tri. - LB)]. There is also ‘Composition Scheme’ at much lower rates but it cannot be availed if a person had paid service tax under construction category.

[Ravikumar muthusamy]

Mr.sharma pls note composite schem i.e. service tax @4.8% is withdrawn from 1.7.2012.

AI Summary

Service tax on building construction requires prescribed valuation, plus a building cess and state works-contract tax implications. Service tax applies to commercial building construction contracts with taxable value set by the prescribed valuation rule that allocates a portion of contract value as taxable; a separate building-construction cess is levied on total contract value. State works-contract tax or VAT consequences and environmental, municipal and electricity-related levies also apply. Administrative guidance treats contracts regarded as works contracts for VAT as works contracts for service tax, and a previously available lower-rate composition scheme has limitations and was subsequently withdrawn.