Indirect tax issues. Workshop on Tax and Accounting Developments in Indian Real Estate Sector

Transcription

1 Workshop on Tax and Accounting Developments in Indian Real Estate Sector Indirect tax issues Manoj Mishra Associate Director, Tax & Regulatory Services Grant Thornton India LLP. All rights reserved.

2 Contents Budget Proposals Pertinent Issues 2

3 Budget Proposals 3

4 Indirect Tax Service Tax Standard rate of service tax is retained at 12%. Abatement in case of construction For residential units having carpet area upto 2000 sq. ft. or where amount charged is less than 1 Crore (including amount of land), abatement remains at 75%. Therefore the taxable value would be 25% In all other cases, including all commercial constructions, abatement is reduced to 70% (accordingly taxable value is increased from 25% to 30%) Impact Service tax liability has gone up by around 0.62% where either value exceeds Rs.1 crore or area above 2000 sq. ft. or both Cost of Marble slabs/ tiles would go up to increase cost of construction A welcome step for smaller cities / area Central Excise Rate of central excise duty on marble slabs/ tiles increased from Rs.30 per sq. meter to Rs.60 per sq. meter 04 4

5 Indirect Tax issues after budget changes No significant change specific to real estate sector Reduction in abatement for certain residential units have resulted into issues related to valuation, e.g. Inclusion of PLC/ other charges either deductible or chargeable to service tax under separate category Subsequent increase in price Increase in value due to optional fitments 05 5

6 Pertinent Issues - Indirect taxes 6

7 Service tax implications Following services are exempt from service tax net: Renting of residential dwelling for use as residence; Erection, construction, maintenance, repair, alteration, renovation or restoration services provided to Government or local authority in relation to residential complex mainly meant for self use or use by employees; Erection or construction services of original works related to: Single residential unit otherwise as a part of a residential complex; Low cost houses of carpet area of 60 Sq. meters per house in a housing project approved by competent authority; and Airport, port or railways. Issue of sub-contractor : Whether service provided by Sub-contractor to main contractor in relation to exempt service shall be treated as exempt or not? 07 7

8 Service tax implications Transaction Sale of under construction properties (i.e. before issuance of completion certificate) Taxability Taxable Sale of fully constructed properties Sale of residential units not having more than 12 residential units Construction and sale of single residential unit Re-sale of properties Surrender of booking Non Taxable Taxable Exempt Non-Taxable Refundable 8

9 Service tax implications Transaction Construction of Infrastructure for general public use Taxability Exempt Construction of Infrastructure for general private use Sale of under construction units to Government Sale of residential unit pre-dominantly meant for employees of Government, Government authority like MP, MLA, members of municipality, etc Sale of flats/units under JNNURM or Rajiv Awaas Yojana Taxable Exempt Exempt Exempt 9

10 Service tax implications Transaction Sale of under construction flats/units to entity registered under Sec 12AA of Income Tax Act, 1961 and to be used by general public for religious purpose Sale of units to charitable trusts for educational purpose Sale of units to charitable / NGO for hospitals, clinic etc CENVAT credit on Inputs (i.e. Excise duty on materials purchased) CENVAT credit on Input Services CENVAT credit on Capital Goods Taxability Exempt Taxable Taxable Barred Available Available 10

11 Service tax implications All contracts would get classified either under works contract or construction only, both being covered under declared services Cenvat credit of taxes paid on capital goods and input services made available. However, credit on inputs not admissible. This will significantly reduce the cost; In case VAT liability discharged under works contract then the value on which VAT liability discharged would be deducted from the total amount to arrive at the taxable value for service tax (actual method) In all other cases (except where liability is discharged under Actual Method), Service Tax may be paid on following abated values: S. Description No. 1. Original works (i.e. new construction and all additions and alterations to be abandoned or damaged structure) Maintenance / repair/ reconditioning etc. Existing rate 40% of the total amount 70% of the total amount 2. Other contracts 60% of the total amount 3. Construction of complex where cost of land is included in the total value 25% of the total amount 30% for area <2000 sq. ft. or value above Rs.1 crore 11

12 Service tax implications Value would include : Labour charges for execution of the works contract; amount paid to a sub-contractor for labour and services; charges for planning, designing and architect s fees; charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract; cost of consumables such as water, electricity, fuel used in the execution of the works contract; cost of establishment of the contractor relatable to supply of labour and services; other similar expenses relatable to supply of labour and services; and profit earned by the service provider relatable to supply of labour and services; 12

13 Service tax implications Nature of Service GTA Service Service Provider Goods Transport Agency Service Recipient Specified persons paying freight Sponsorship Any person Corporate/ Partnership Liability of Service Provider Nil 100% Nil 100% Legal Services Individual/ Firm All business Nil 100% of advocates entities Works Contract Manpower Supply Import of Service Non corporate entity Non corporate entity Person in nontaxable territory (including J&K) Body corporate 50% 50% Body corporate 25% 75% Person in taxable territory Nil 100% Liability of Service recipient 13

14 Indirect Tax issues Taxability of payment received in respect of ongoing projects having less than 12 units taxability of transfer of development rights in case of Joint Development Agreement Non availability of cenvat credit on construction services for leasing/ renting business non availability of cenvat credit on construction to commercial buyers Linking VAT and service tax for discharging service tax liability Issues in real estate Sector suffering higher transaction taxes Construction in J&K Exempt from Service tax being outside scope of charging section (Place of provision J&K, being non-taxable territory) Cenvat credit restriction and Rule 6(3) of Cenvat Rules to be applied) 14

15 Thank You Manoj Mishra Associate Director, Tax & Regulatory Services Grant Thornton India LLP M D T E manoj.mishra@in.gt.com 15