Service Tax is levied by the Central Government on the construction services offered by the developers to buyers. Presently, Service Tax is 14 per cent.
Though it sounds simple, calculation of service tax is a bit complicated due to its applicability to various cost heads. The basic cost of the property you pay includes the cost of land and construction. Service tax is applied only on the construction component. To simplify this, the government levies service tax on 25 per cent of the cost of the flat. This effectively brings the service tax rate to 3.5 per cent.
For apartments with carpet area of more than 2000 sq ft or for property valued Rs 1 crore or above, service tax is levied on 30 per cent of the cost of the property. This takes the service tax to 4.2 per cent for such properties. However, service tax is levied on the entire amount on other cost items such as Preferred Location Charges (PLC), Floor Rise Charges (FRC), initial maintenance charges,development charges, electrical and infrastructure costs,legal fees and club house etc. In all these cases service tax is standard - 14 per cent.
Service tax is payable only on property purchase directly from developers and is not required in case of resale property purchase as there is no service provided.