Must I pay service tax?

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I am aware that service tax has been implemented since June 16.

I understand that a 10.2% service tax will be levied on builders.

If I have registered a property before June 16, 2005, can the builder still levy a service tax?

- Vishal N

If the service being rendered by the builder falls during the period in which the service tax is applicable, the builder can recover it from the person who buys the flat.

Hence, the payment and service period is critical in your case. You may have to pay the tax even though the property has been registered before the date on which the service tax became applicable.

To find out more about the service tax levied when you buy a home, read Buying a home? Service tax will hit you. 

I purchased an apartment; its construction began in March 2005 and will be completed by December 2006.

The builder has given a contract to a construction company to construct the apartments.

After the Karnataka government announced the VAT implementation, the builder asked me to pay the VAT on construction amount.

Let's say the total construction cost = Rs X

Y = 10.2 % on 33% of X (considered as labour charges)

Z = 12.5 % on 67% of X (considered as building contract)

Amount payable to builder = (Y + Z).

Must I, the customer, pay this? Or does the builder have to pay it?

- Mahadev KC

With effect from June 16, 2005, exemption has been provided up to 67% of the gross value of services provided by the builder. Hence, service tax would be charged on 33% of the gross value.

If the builder uses the services of other contractors for painting, civil works etc, he will need to pay the Works Contract Tax (part of VAT) on such an amount.

However, if the builder does the work himself and does not employ the services of other contractors, then the WCT element would not be applicable.

The builder, of course will pass it on to the client. 

• Are profits from shares taxed?

I have a home loan protection policy. This is a total risk cover and there is no survival benefit.

I started this policy in November with a monthly premium of Rs 327.

From April onwards, they have increased it to Rs 350. The reason: service tax as per the government policy for morality charges.

However, my colleagues are not paying any service tax on their LIC policy.

Since I am claiming an income tax benefit from this policy, is it possible to claim the service tax too?

- Soumendra Bain

Service tax is applicable on the value of the service provided by the insurers (both life insurance and non-life insurance companies).

Certain companies may bear the brunt of such charges on themselves instead of passing on to the client.

However, it is not necessary that this situation may continue forever. After a point of time, the companies that are currently not charging clients the additional service tax burden may pass on the cost to them.

You cannot claim any tax benefit on the service tax.

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