Last updated: December 17th, 2019 5:10 PM

Service Tax on Construction

The construction industry is one of the biggest industries in India, employing millions of workers and generating a significant portion of the Indian GDP. Residential complex construction is a subset of the Indian construction industry, dealing with the construction of new residential complex or repair / alteration of existing residential complex building. The service provided in relation to construction or renovation of residential complex is chargeable under service tax. In this article, we look at service tax on residential complex construction.

Service Tax on Sale of Apartment

In case of a purchase of an apartment, one of the charges levied on the property buyer is service tax. The reason service tax is levied on a property purchase, which is a part of a residential complex is that - service tax is applicable on service provided in terms of construction or renovation or repair of residential complex.

Residential complex is a building or buildings, having more than twelve residential units. In addition, to be classified as a residential complex, the building must have a common area and a facility like park, lift, parking space, community hall, common water supply or effluent treatment system, located within the premises.

If a residential complex is constructed for personal use as a residence by a person, then the same will not be classified as a residential complex. In such a case, service tax will also not be applicable.

Construction Services Service Tax

Any of the following services provided relating to a residential complex, as defined above is taxable under Service Tax regulations:

• Construction of a new residential complex;
• Completion and finishing services in relation to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services;
• Repair, alteration, renovation or restoration of, or similar services in relation to, residential complex;

In a case where the builder or promoter builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of the residential complex, then the contractor would be liable to pay service tax.

Rate of Service Tax

Service tax at the rate of 14.00% and 0.5% of Swachh Bharat Cess would be applicable on construction services provided with respect to a residential complex. Further, in case of small service provider having an annual taxable service revenue of less than Rs.10 lakhs, service tax would not be applicable.