The rate of service tax on real estate is 3.75% or 4.5%.
The properties are to be classified into two — the first is the ready-to-move and the second is under construction.
When it comes to purchasing a property, there are various factors that owners need to consider. One such aspect is the service tax on the property. Service tax, a tax levied on the services provided by businesses, also applies to properties. Today, we will delve into when and how service tax must be paid on properties.
Firstly, it’s important to clarify that service tax is only applicable to under-construction properties in the real estate sector. Ready-to-move-in properties are exempt from service tax. This is because when a property is fully built and transferred to the buyer, there is no service provided by the developer or seller.
In the case of under-construction properties, service tax is levied on the building complex, civil structure, or sections being sold by the builder or real estate developer. The service tax must be paid by the seller before the Competent Authority issues the completion certificate.
The rate of service tax on real estate is typically around 3.75% to 4.5%, depending on the size of the property and the transaction amount. However, there are certain exemptions. For instance, the sale of a single-owner stand-alone residential building is exempt from service tax. Additionally, low-cost houses with carpet areas of up to 60 square meters may also be eligible for exemptions if the housing project is approved under the Affordable Housing Scheme by the appropriate authorities under the Ministry of Housing, Government of India.
Property owners must be aware of their tax obligations and seek guidance from tax specialists to ensure compliance and explore potential tax-saving opportunities. While property transfers may be subject to heavy taxes, understanding the nuances of service tax and other applicable taxes can help taxpayers make informed decisions.
When purchasing or selling a property, it is advisable to consult with experts who specialize in property taxation to navigate the complexities of service taxes and optimize tax planning strategies. By doing so, property owners can ensure they fulfil their tax obligations while making the most of available exemptions and benefits.
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