Flat buyers spared service tax on maintenance fee

Mumbai: Home buyers have something to look forward to in an otherwise dull property market. The customs, excise and service tax appellate tribunal recently held that they will no longer have to pay service tax on the one-time maintenance charge (deposit) paid to builders at the time of booking a flat.
“The impact of indirect taxes on home buyers is very high. So, this order will, to an extent, help buyers save 12.36% (service tax) on the amount of the deposit paid,” said Sagar Shah, head (indirect taxes), BDO India.
The one-time maintenance charge includes a flat owner’s share in the common ele
ctricity bill, lobby and water charges in a housing complex. The charge varies according to the project, amenities, use of property (whether for commercial or residential purpose), the city as well as the location and other such factors.


Buyers won’t have to pay 12.36% service tax on one-time maintenance fee paid to builders

Developers have to keep records and refund the balance once housing society is formed

Refund of balance maintenance fee after soc is formed

Mumbai: The order that has given service tax relief on onetime maintenance charges paid to builders, calculated as a fixed amount on the area of a flat or rate per square foot, also reiterates that developers keep a separate record of the deposits and refund the balance amount to buyers once a society is formed.
“Besides, each flat buyer who has paid maintenance charges can claim refund on a oneon-one basis from the service tax department. The refund, though, can be claimed within a year of the builder crediting the tax amount to the government’s account,” said Sagar Shah, head (indirect taxes), BDO India.

The order is both good and bad, said Rajesh Mehta of Raha Realtors. “It is good as developers will be forced to maintain proper records of maintenance charges collected from buyers as mandated under Maharashtra Ownership of Flats Act (MOFA). However, once a society is formed, there is never any explanation given on how the money has been spent. In some cases, as a society is not formed for more than a year, a meager sum gets transferred to the society’s kitty,” said Mehta.
The order was passed by a
two-member bench of S S Kang and P K Jain, on an application filed by Kumar Builders challenging a ruling by Commissioner of Central Excise (CCE), Pune. CCE had asked the builder to pay service tax on the maintenance charges collected from buyers for providing “maintenance or repair” service.
The tribunal accepted builder’s contention that under MOFA, a builder is under an obligation to collect a one-time deposit and keep it in a separate bank account as fixed deposit. “The builder is not paying anything on his own but acting as a trustee or an agent, collecting payments on behalf of various authorities such as the civic body and revenue department. So, no service tax can be levied on the deposit,’’ said Shah, a CA who appeared on behalf of the builder.


Developers demand a one-time maintenance charge towards:

Maintenance and repairs of common areas and facilities Watchmen & sweepers’ pay Insurance Revenue assessment All other taxes, levies Electricity and water charges

Source : Times Of India
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