Bringing construction services under the ambit of the service tax is likely to raise the cost of apartments that are still under construction. As per the Budget proposal, construction would be deemed to be a taxable service if the building or complex is still under construction and approval from the concerned regulatory authority hasn’t yet been granted. The levy would cover all construction of complex service or commercial or industrial construction services, according to the Finance Bill.

The service tax levy would be 10.3 per cent and would also apply to additional services such as those offering preferential locations for flats in multi-storey buildings where flats in each floor are priced at a premium due to their location. The premium is typically levied on categories such as flats or apartments that are above a certain floor rise or have other high value locations such as being in front of a garden or a sea or any other preferred locality. The service tax would be 10 per cent on 33 per cent of the price of the apartment, while on the remaining 67 per cent, tax won’t be levied.

Till now, for all apartments under construction, customers paid in instalments based on plinth level construction and also on the progress in building activity. Banks too lent money to the customers according to the requirement of the builder. Now most developers would ask customers to pay the entire value of the building if they sought to lock in at a certain value. This would mean paying the entire sum before the construction.

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