CLARIFICATION ISSUED - Government clears air around service tax


The government has issued clarifications on the service tax on real estate and air fares proposed in the Budget.

According to the Thursday clarification, if you bought an immovable property (residen- tial or commercial) before 1 July, you don't have to pay any service tax. If you booked a house which has not been constructed yet, your payment before 1 July is not taxable. However, any subsequent payment will come under the tax net.

The Budget proposed to levy a service tax of 10.3% on the purchase of any property, on 33% of the gross value of the property.

But the government clarified that the service tax will be levied only on 25% of the gross value if it includes cost of land.

Subsequently, you need to pay stamp duty and registration charges.

However, you will be shelling out more for your house. The increase this time would be 2.58% compared to the earlier proposal of 3.3%.

The government has also widened the scope of the phrase “competent authority“ in real estate. Now even an ar- chitect, chartered engineer or a licensed surveyor can issue you a completion certificate. This would speed up the process of issuance.

“Linking service tax liability with issuance of completion certificate would thus also pose practical difficulties,“ said San- tosh Roongta, national president, Confederation of Real Es- tate Developers' Association of India. “The date difference be- tween construction activities, date of payment and date of agreement will lead to the con- fusion over issuance of com- pletion. But the widening would remove the bottleneck of bureaucratic hurdle of issu- ance.“

Also, according to the notifi- cation, if an agreement is en- tered into or any payment is made for sale of a complex or an apartment before the issu- ance of completion certificate, service tax will be levied on such transactions.

In case of air tickets, the ser- vice tax will apply on bookings done after 1 July. So if you booked before 1 July for a flight after 1 July, you will not be pay- ing any service tax if you are travelling domestic, or in the economy class of an interna- tional flight.

For domestic air tickets bought after 1 July, the service tax is 10% of the gross air tick- et--exclusive of passenger ser- vice fee and user development fee--up to a maximum of Rs100. For international econo- my class, too, the service tax is 10% with a ceiling of Rs500 for tickets bought after 1 July.

You pay this tax for each sec- tor that you fly. So everytime you embark on a flight, you will have to pay a service tax. How- ever, journeys to and from the North-East have been exempt from service tax.

The service tax of around 12% on business class and first class seats in international flights will continue as before.

deepti.bh@livemint.com