Paying service Tax to Building Contractor

[Guest]

Dear all

Need your help

I am a software engineer, building an Indipendent home on 1600sqft plot at Bnagalore. for this i have hired an architect who at the time of hiring did mentioned that i need to pay tax (VAT?) on the amount i pay r for the service (Architetcural fees)

Now the the contractor (he has done good work, so no questions about his quality) mentioned that i need to pay 12%< some tax on the amount i pay him ( i am giving a rate contract), so if i pay 30lakh apart from whatever he makes i need to pay 12% of that to him for his services

Is this correct, as a salried person after 30% TDS it's pain for me to pay the service tax for him, can i show it in my tax return to avail teh benefit?, he did say that he will take only some part as cash to reduce the total tax. but is their a way i can recoup that from my tax return?

Please advise

Raghu

[CASeetharaman KC]

Please refer to Notification no. 25/2012 dated 20.06.2012, effective from 01.07.2012

 Clarification by the Board

(Taxation Guide – Guidance Note – 7 – Exemptions dated 20.06.2012)

“7.9.7 What is the service tax liability on construction of two - floor house constructed through a contractor? My contractor is demanding service tax. Is he right in doing so?

Service tax is payable on construction of a residential complex having more than one single residential unit. Single residential unit is defined in the notification and means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family. If each of the floors of your house is a single residential unit in terms of the definition, the contractor is rightly demanding service tax. If the title of each of floors is capable of being transferred to another person by mutation in land/ municipal records, both the floors may be considered as separate single residential units.

There would be no service tax liability as stated above, it is also not clear why your architect is demanding VAT as he is rendering you a service and there is no VAT on service

[Guest]

Thank you Seetharaman for the reply,

Yesterday night i checked with few other folks who got the house built by same contractor. they did mentioned they paid some part as tax (Service Tax) to teh contractor. Mine is G+1 unit duplex for only for single family with no additional units for rental

So can i assume there is no Tax i need to pay for Contractor for Independent home?., also my architect is demanding service tax/vat for the charges i need to pay ieo(she is charging X% of total contruction cost) so i need to pay some tax of 12%< on that charge towards tax

appreciate your response

 

regards

Raghu

[Guest]

just spoke to contrcator again. what he tell is of 100% of contruction cost 70% is for material and 30% is labour

I need to pay 14% VAT for 70% of material cost and his tax consultant is going to check if Service tax is to be levied on 30% of labour cost

if 50laks is our estimate, 70% of it is ~30lakh which is material cost and ineed to pay VAT of 14% for this cost

appriciate your advise

regards

raghu

[CASeetharaman KC]

If the building is constructed exclusively for your use and is registered as one unit and not separately for separete floors for a family then service tax is not payable. VAT payable is on 70% in Karnataka but you need to check whether there is any exemption for an induvidual who is doing his own house construction.

AI Summary

Service tax on residential construction: leviable for multiple transferable single units, not for an exclusive single unit home. Service tax applies when construction comprises multiple single residential units capable of separate transfer; it does not apply where a building is constructed exclusively as one self-contained unit for a single family. VAT is not imposed on services, so an architect's service fee should not attract VAT, though it may be subject to service tax. In practice VAT is treated as payable on the material portion of construction in the cited state, while the contractor may assess service tax on the labour component and taxpayers should check state exemptions for owner occupied single unit construction.