Service tax on real estate and infrastructure

Written by fe Bureau | Updated: Aug 5 2011, 06:55am hrs
Here are some queries on taxation and service tax liabilities, addressed by Ernst & Young. Readers may mail their queries to [email protected]

We construct residential townships and we are constructing multi-storied apartments in Gurgaon. Apart from the basic sale price of the apartment, we also levy certain other charges like preferential location charges, external development charges and internal development charges. We provide free car parking to all our customers. We have been informed that in addition to the basic sale price, we are also required to levy service tax on such charges. Please suggest.

Charges for preferential location or external or internal development (EDC/IDC) have been made liable to service tax with effect from July 1, 2010. Thus, service tax is leviable on any amount recovered on account of preferential location or external or internal development. In this regard, through circular No. 334/1/2010, it has been clarified by the department that any amount charged by a real estate developer on account of external or internal development to the extent it is subsequently paid to the state government or local bodies would not be leviable to service tax.

Given the above, in case the external/ internal development charges are partly/ wholly paid to the government, service tax need not be paid on such amount. However, on the amount EDC/ IDC retained by the company, service tax will be applicable at the rate of 10.3%.

We are civil contractors and have been awarded a government contract for the construction of a dam. Please let us know if we are liable to charge service tax on our invoices.

We understand that the services provided by your company should be classifiable under the taxable category of Commercial or Industrial Construction Services or Works Contract Services. However, please note that under both the taxable categories, services provided in respect of dams, roads, tunnels, airports etc. are exempt from service tax. Accordingly, the services provided by you should not be liable to service tax.

We are an event management company engaged in conducting seminars, conferences, functions, etc. within and outside India and registered with the service tax department. In many cases, companies approach us to conduct seminars outside India. In such cases the companies to which we are rendering services are based in India but the events are organised outside India. Please advise whether in such cases, the event management service would qualify as export of services.

Export of services in India is governed by the Export of Services Rules, 2005. These rules prescribe the criteria for services to qualify as an export and hence determine the applicability of service tax. Different criteria have been prescribed for different taxable services. In the case of Event Management Service if the event is organised outside India and the payment for managing the event is received in convertible foreign exchange then the services would qualify as an export of services, hence, is not liable to service tax.

We have acquired a film theatre and entered into contracts with film distributors to screen their movies at our theatre. Our arrangement is on a revenue sharing basis i.e. we earn a percentage of their revenue earned from selling the tickets and the balance goes to the distributor. We have been informed that the activity of screening of films supplied by a film distributor may fall under the taxable service category of renting of immovable property. Would such an arrangement attract service tax

It is understood that the arrangement between you and the film distributor is on a principal to principal basis and there is no element of service being rendered by you to the distributor. Hence, the activities may not get covered under service tax. However, if you lease out the theatre for screening of movies to the distributor and get a fixed rent from distributor, in such a case, the activity of leasing would get covered under the taxable service of renting of immovable property service and is accordingly liable to service tax. The agreement between you and the distributor would need to be reviewed in order to determine the applicability of service tax.

The replies do not constitute professional advice.

Neither E&Y nor FE is liable for any action taken on the basis of these replies