New Delhi: The Finance Ministry has exempted builders and developers of residential projects from the service tax net.
Builders will not have to pay service tax if they employ direct labour. On the other hand, if the builder ropes in a contractor to get the project done, the contractor will have to pay the service tax.
The service tax had been imposed in last year's budget. Builders had contested this levy on the grounds that it amounted to double taxation.
The Union finance ministry issued the much-awaited clarification exempting builders/developers, undertaking residential constructions, from the service tax net.
Two Pune-based builders’ organisations — the Promoters and Builders Association of Poona (PBAP) and the Marathi Bandhkam Vyavasayik Sanghatana (MBVS) — had made a representation to the ministry over the issue, besides filing a case in the Bombay high court.
The organisations on Saturday received copies of the finance ministry circular, dated August 23, 2007.
The construction industry was included in the service tax net in the Union Budget 2005-06, but builders and central excise officials had been debating whether service tax can be imposed on residential properties with more than 12 tenements.
The finance ministry’s latest circular categorically exempts developers/builders from collecting service tax from property buyers, provided they had constructed the residential complex by employing direct labour.
Also, in all such cases where the developers had employed the services of a contractor, it is the contractor who will have to pay service tax and not the builder.
With inputs from moneycontrol.com
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