Service Tax is Payable on Flats Allotted to Landowner, clarifies Finance Ministry

Service Tax is Payable on Flats Allotted to

Landowner, clarifies Finance Ministry

When the landowner is given flats in lieu of cash,

such flats become liable to service tax, the Finance

Ministry clarified recently among other things.

Suppose, the landowner invites a builder to demolish

his bungalow and construct 10 flats thereon, with two

flats being allotted to him as sale consideration, the

two flats, though for non-cash consideration, would

attract service tax immediately on signing of the

building agreement. The taxable value would be the

amount for which similar flats have been booked by

the other buyers on the date of such agreement. It

boils down to this: if on the date of the agreement

with the builder, there are two buyers who have

booked their flats that are similar to those allotted to

the landowner at R40 lakh each, the allotment of the

two flats to the landowner would be a taxable event,

liable to service tax. With abatement allowed being

75% towards the goods used in the construction,

which obviously cannot be subjected to service tax,

R10 lakh would be liabe to service tax, which currently

is10.3%. If the flats are not comparable on account of

difference in the area, the rate per square foot charged

from buyers must be taken into account.