Kumari Palany & Co

Impact of Budget 2015: Builders – Beware !!! (Expert Article)

Posted on: 18/Mar/2015 3:16:38 PM
A QUICK LOOK INTO THE IMPACT ON CONSTRUCTION INDUSTRY 

1. Importance of updates:
  • They always say that “Ignorance of Law cannot be considered as an excuse”

  • This precisely applies in service tax also. In fact, there are many instances where the service providers end up paying service tax out of their pockets because of ignorance of service tax provisions.

  • To avoid such situations, its best to be aware of the recent changes that happen in the respective industry. 
2. Changes in Construction Industry: 

Post the budget 2015, w.e.f. 01.04.2015, the following services are taxable specific to the Construction Industry.

Construction, Erection, Commissioning, Installation, Completion, Repairs and Maintenance provided to the Government / Government Authority / Local Authority shall be taxable:
  • Civil Structure or other original works for non–commercial use
  • Structure meant for use as (a) educational (b) art (c) Clinical establishment
  • Residential complex for self–use or use of Government employees / MPs / MLAs etc. Construction of Airport / port
3. Impact of the above changes on the Industry: 

Since most of the government projects are operated through tender process, the builders need to ensure that they factor in the service tax cost also as part of their price. Else, they may have to shell out of their own pockets, which could effectively erode their margins.

4. Builders can pay service tax at the rate of 14% (to be effective from the date of passing Finance Bill 2015) under various schemes available under service tax. 

5. Determination of Value of the Service:

(a) Option 1: Value: Contract Price + Labour Charges + Consumables – Sale Value of goods 

(b) Option 2: Taxable Value: % of Contract Price (if classified as works contract service):
  • Nature of Works Contract Service Taxable Value    
  • New Constructions 40% of the Total Amount Charged    
  • Maintenance /  Repair / Restoration or Servicing of properties 70% of the Total Amount Charged    
  • Condition: The provider of taxable service shall not take CENVAT Credit of duties or cess paid on any Inputs used in or in relation to the said Works Contract.  
  • Total Amount Charged: Contract Price + Materials given by the buyer – amount charged by the buyer for giving the materials
(c) Option 3: Taxable Value: % of Contract Price (if classified as Construction service):
 
Nature of Service Taxable Value   

      All Constructions (a) Commercial Complex (b) Residential Complex (If carpet area > 2,000 sq. ft or unit value ≥ Rs.1 Crore) 30% of the Gross Amount Charged   
Other Constructions 25% of the Gross Amount Charged   
Condition: The provider of taxable service shall not take CENVAT Credit of duties or cess paid on any Inputs used in or in relation to the said Works Contract.  
Gross Amount Charged: Contract Price + Materials given by the buyer – amount charged by the buyer for giving the materials + Fair Value of Land.

CA T.R.Srinivasan
Shree Guru Kripa’s Institute of Management
Ph.No.: 97899 76079
Mail ID: trs.connects@gmail.com

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