As India continues its scorching pace of economic growth, many sectors that were not historically favoured by the government are gaining prominence. One such sector is real estate, which has a large employment generation potential and is a significant source of tax revenue. Additionally, this sector has attracted a large amount of foreign investment in recent times. Therefore, the government would do well to address the many complexities and ambiguities—on the indirect tax front—that the sector is facing.
Historically, the key indirect taxes that applied on the construction and real estate sector were works contract tax (now VAT) and stamp duty. With the expanding service tax net, various construction activities have been brought within the service tax net, notable among them being construction of commercial and residential complexes and renting of immovable property. The latest addition to this list was service tax on works contract, which was introduced in the last budget.
However, the amount of works contract tax payable, under both service tax and VAT, is anything but clear. The Supreme Court, in K Raheja development corporations case in 2006, held that if a developer enters into a contract for sale of a residential apartment before construction is completed, it would be a works contract.
More : economictimes.indiatimes.com
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