Service Tax charged on Redeveloped projects done by Developers

By Abhay Harish Shah , Realty Quarter

Again a new problem arose for the real estate people.

A developer redevelops a society and delivers the apartment to its original owners for free of cost. The tax department wants to impose service tax on those projects which have been redeveloped and delivered.

The Indirect tax department has issued about 400 notice in the past few months for the non-payment of Service Tax.

Tax expert ” Mr Abhishek A Rastogi (partner at Khaitan & Co.)” said in regards to development rights, tax department wants to levy the tax on under-construction service to its original residents. Further, The tax-ability of redevelopment projects is going to impact developers especially in places like Mumbai.

Now the point kept by the tax administration is quite a fair. As in redevelopment projects what truly happens is, the right to redevelop a society is given to a real estate developer. They construct the society with larger flats then original and delivers to the society member. In addition, they construct a few more flats in the same space and sells it to a new buyer. This barter deal between the society members and developer brings out a thought to pay service tax for the development.

It is assumed that it will come in favour of the transfer of development rights after filing writ petitions. But, the valuation given to the society members remains a challenge.