Service tax on property purchase
Dear CAs,
I am buying a villa. The villa is costing 1.5 crores. Now, what I understand from Google research is I need to pay registration charges (about 6%) on 50 lakhs, service tax @15% on 50 lakhs and VAT (1.25% as I am in Hyderabad, Telangana) on 50 lakhs.
Now comes the tricky part.
Scenario 1 - I opt for housing loan now even for registering the plot/land. Which means I need to enter into a triparty agreement with builder and bank and then I pay 25% of 50 lakhs for plot registration and the remaining 75% will be paid by bank. After registration, I will then have to enter into construction agreement with builder for the remaining 1 crore. In this case, I am assuming I will have to pay service tax on 50 Lakhs and VAT on 50 Lakhs. Is my assumption correct? However, the builder says the service tax is applicable on entire 1 crore. Is the builder correct?
The builder is suggesting to rather go for the below option
I pay the entire registration amount by myself i.e. 50 lakhs without opting for loan. For the remaining 1 crore, I opt for housing loan and enter into a triparty construction agreement. In this case, the builder says I will only have to pay service tax on 50 lakhs and VAT on 50 lakhs. Why is it so?
Thanks
Sandeep
Asked 7 years ago in Service Tax
Dear CAs
Looks like I was not clear. Anyway I have rephrased the question. Please see below
I am buying a villa. The villa is costing me 1.5 crores. I understand that I need to pay the following charges
- Registration charges (about 6%),
- Service tax @15% on 50 lakhs or 4.5% on the entire 1.5 crores and
- VAT (1.25% as I am in Hyderabad, Telangana).
Now comes the tricky part. Normally I will pay the builder as and when he reaches a milestone. For example, after slab work is done, I pay the builder 20%. Generally, the last milestone is handover and registration. However, I have a different agreement with the builder. I am getting the plot registration done upfront by paying him 50 Lakhs and will pay the remaining 1 crore to the builder based on the work completion. For instance, 20% after slab work is done. Based on my context I have two options. Can you please suggest which one I must opt for?
OPTION 1
Step 1: I opt for housing loan now i.e. even for registering the plot/land.
Step 2: I pay 25% of 50 lakhs for plot registration and the remaining 75% will be paid by bank.
Step 3: After registration, me and bank will have to enter into construction agreement with the builder for the remaining 1 crore. Bank pays the builder based on the work completion status.
In case of option 1, what are the applicable service tax and VAT rates and why?
The builder is suggesting me to go for the below option because he says I will have to pay lesser service tax. Not sure why?
OPTION 2
Step 1: I pay the entire registration amount by myself i.e. 50 lakhs without opting for loan.
Step 2: After registration, for the remaining 1 crore, I opt for housing loan and enter into a tripartite construction agreement. Bank pays the builder based on the work completion status.
In case of option 2, what are the applicable service tax and VAT rates and why?
Thanks
Sandeep
Asked 7 years ago
