Legal Corner » Service Tax

What are the latest Indian rules for repatriation and what is the procedure to follow?

atoneplace — Sat, 24 Oct 2009 08:40:26 +0000

Question asked by Shiva Badruswamy from New York, USA :
Hello there:
Thank you for being very informative about real estate Indian laws. I am about to inherit a property in India worth roughly $1 million. I am a US Citizen of Indian Origin. I want to sell the property and bring the cash over to the US or buy another property in another country or invest in any security. What are the latest rules and what is the procedure to follow?
Best wishes,
Shiva Badruswamy
New York, NY, USA
Vatsala Answers:
You can sell the property and repatriate the funds. NRI / PIO may repatriate the sale proceeds of immovable property in India. The following are the latest rules:
(a) If the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels / by debit to NRE / FCNR (B) account. The amount to be repatriated should not exceed the amount paid for the property:
1. in foreign exchange received through normal banking channel or
2. by debit to NRE account(foreign currency equivalent, as on the date of payment) or debit to FCNR (B) account.
Repatriation of sale proceeds of residential property purchased by NRI / PIO out of foreign exchange is restricted to not more than two such properties.
Capital gains, if any, may be credited to the NRO account from where the NRI/PIO may repatriate an amount up to USD one million, per financial year, as discussed below.
(b) If the property was acquired out of Rupee sources, NRI or PIO may remit an amount up to USD one million, per financial year, out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bona fide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance.
If you invest in another country where the double taxation avoidance treaty has been signed, you have to pay only the difference in the taxation amount.
Vatsala
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Can A Builder Ask For VAT And Service Tax Even If He Didn’t Mention About Them At The Time Of Sale?

atoneplace — Thu, 05 Mar 2009 01:29:11 +0000

Question asked by Mr. Amrendra Singh from Bangalore:
Hi I came to know about u from some of my friends.
Now the problem I am facing is as below.
1. I had bought a flat in Bangalore from the builder â€œUKN Esparanza â€œ some 3 months before and at the same time we have applied for the loan from IDBI bank. Now we have made all the payments towards the apartment including the deposits and other things and only the registration is pending.
2. Recently they have sent a demand lettter to pay the registration cost and included Vat and service tax with that. Though at the time of booking of the flat they have confirmed us that there wonâ€™t be any VAT and service tax charges.
3. I understand that there is a clause in the sale agreement which says that any taxes levied by govt. at the time of registration has to be paid by the customer, but they have not mentioned anything towards the VAT and the service tax on the breakup latter provided and the bank has also funded based on the breakup letter.
4. Now since the Vat and the service tax levied is in tune of 3 L, I am unable to pay the same.
Need your assistance in understanding that how we can handle the situation. As these charges were never been discussed at the time of the sale, how can a builder ask fr the same now.
Anticipating your fast reply in the regard.
Thanks & Regards
Amrendra Singh
Vatsala Answers:
VAT and service charges are statutory liabilities passed on the customer. You can approach a chartered accountant to determine if what the builder is demanding in lieu of the same is the correct amount or not. Other than that there may not be any way to completely escape paying it. Vatsala
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Do One Needs To Pay Service Tax And VAT In Resale?

atoneplace — Sat, 04 Oct 2008 01:27:41 +0000

Question asked by Vikas Verma from USA:

Dear Vatsala
I highly appreciate your efforts in resolving lot of property related queries. I am in a bit of a situation and need your help. I am planning to purchase a flat in Hyderabad, this is a new development. Developer started selling flats in this development in 2005, and the flats are ready for possession by next month ie Sep. 2008. There are few flats still up for sale from the developer. Lets say the price developer is quoting right now is Rs X / sft + amenities like car parking and common amenities like clubhouse etc (y) developer would charge + service tax (z) + VAT (A) and registration
(B). So the total cost of purchasing this flat for me would be X+Y+Z+A+B.
I have been speaking to a gentleman for purchasing a resale flat in the same development, he has got the flat registered on his name and there was no VAT and service tax when he purchased it in 2005, so he has not paid either VAT or Service tax for this flat. Could you please tell me what would be my total cost of purchasing the flat in resale if the value of flat is 0.9X that I am being quoted? To simplify it further would I be required to pay VAT and service tax if I bought this property in resale now, also, will I be required to do the registration and pay 10% / 12% what ever is the prevailing rate? Is there any way I could reduce the cost of registering this property in resale. This gentleman whom I am planning to buy the property is an NRI.
I would highly appreciate your inputs, apologies for any naivety since this is my first property purchase.
Cheers
Vik

Vatsala Speak:

On a resale flat no VAT or service charges apply. However registration and stamp duty charges have to be paid. This can be reduced by not showing part of the consideration in the sale deed (but only showing with the guideline value, which is less than the market value). You could show the other amount against fixtures and fittings in the flat or alterations/ improvements done to the flooring, etc.Vatsala

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How much VAT should be paid?

atoneplace — Wed, 20 Feb 2008 02:12:42 +0000

QuestionÂ asked by MrÂ Moorthi Subramaniyan from Bangalore:

Vatsala,
Hi, I am Moorthi, recently I got registered my flat in a small apartment (it has 12 flats) in Bangalore.
My agreement with builder is Rs. 9L for land cost & Rs. 21L for construction (including electricity, water, registration etc).
My question is, How much VAT I need to pay (based on 4%)? Can you help me on this?
Regards
Mr. Moorthi Subramaniyan, Bangalore

Vatsala Answers:

Service tax will not be attracted for a complex where the total number of Apartments is 12. Regarding the VAT liability, it may not be payable on the entire amount of Rs.21 lacs. Definitely the amounts charged towards cost of registration and obtaining electricity and water connection should qualify for abatement. On the balance amount, the builder has two options for collecting VAT, viz., either the compounding option or the actual value option. If he prefers compounding option then the VAT is payable on the balance amount at 4% in Karnataka. If the builder chooses collecting VAT on the entire balance amount because it is more beneficial to him, then it is payable at 4% to 12% (depending on the construction material) on actual value added after taking credit for the VAT suffered on the inputs. While you cannot force the builder to choose a particular option, if the builder does not go for compounding option, then you can apply compounding rate of 4% on the balance amount as aforesaid and compare the same with the VAT charged by the builder and check whether it is more favorable. Vatsala

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Sales & Service Tax issues

atoneplace — Thu, 17 Jan 2008 01:28:52 +0000

QuestionÂ asked byÂ Divya from Banglore:

The size of the land is 1350 sqft approximately .After registering the appartmentÂ to our individual names in late 2007 ,we singed a construction agreement with the promoter to build and deliver the house to us. We have financed the appartment through housing loans.

The builder is now close to handing over the possession of the properties and there is one issue at this point.
1) There has been around 3-4 Lakhs that’s been collected by the promoter for each of these properties towards Sales & Service Taxes. This community development at the current phaseÂ has 35 plus apartments in two or three separate blocks.
a)Â I had already paid most of the S&S taxes to them, As per my interpretation of the recent rulingÂ from tax department in late 2007, the buyer is not liable for Sales & Service Taxes. When I asked them about this they said it does not apply to them and I’m still responsible for all the service taxes.So could you please help us in clarifying the follwing points.
1)Are we liable to pay serivce tax according to the latest rule.If yes how much percent?
I’m really puzzled and shocked at this situation and kindly request you take me as your client and help me out.
Please let me know how can I futher reach your office and engage your office in helping me with this issue.

Thanks in advance,
Kind Regards,
Divya

Vatsala Answers:

Hi Divya your question is similar to Rajesh Padmanabhanâ€™s question. See my post â€œSales and Service taxâ€¦Legal Help please!â€ on January 8th 2008. Good Luck!

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Sales and Service tax…Legal Help please!

atoneplace — Tue, 08 Jan 2008 02:45:10 +0000

Question asked byÂ Rajesh PadmanabhanÂ from Los Angles, California:
Hello Vatsala Madam,
My name is Rajesh Padmanabhan, I’m basically from chennai and I’m currently living in Los Angeles as an NRI.
I currently in need of a Legal consultation and support from a Real Estate expert lawyer in India who could help us with our current situation.
Â
Myself Rajesh Padmanabhan, my brother Mohan Padmanabhan who too lives here in CA are and our Mother Meera Padmanabhan who is living in chennai have bought individual homes in a Gated community in chennai outskirts, the gated community is called PARSN’sÂ “RENASCENCE” and it has been promoted by
Â
Parsn Urban Development Ltd.
129 Parsn Villa, Luz Church Rd., Chennai, , India
()4424991734, 4424995988 fax, http://www.parsn.com
Â
The size of the land of each of this three individual house is varying in size from 2200 sqft – 3000 sqft approx. After registering the land from the promoter Parsn to our individual names in early 2006 through our PoA and then we singed a construction agreement with the promoter to build and deliver the house to us. We have financed all the three houses through housing loans.
Â
The builder is now close to handing over the possession of the properties and there are twoÂ issues at this point.
Â
1) There has been around 3-4 Lakhs that’s been collected by the promoter for each of these properties towards Sales & Service Taxes. This community development at the current phaseÂ has 40 plus individual homes and 20 plus apartments in two or three separate blocks.Â The issue I have here are:

I had already paid most of the S&S taxes to them, As per my interpretation of the recent rulingÂ from tax department in late 2007, the buyer is not liable for Sales & Service Taxes. When I asked them about this they said it does not apply to them and I’m still responsible for all the service taxes.When I requested them to provide me the receipt for the saervice taxes especially ( I came to know they deposit the service tax in bulk and so I requested them for a a copy of their deposit with a break down of service tax against my properties listed in the company letter pad) . They are refusing to give that and asking me to pay the rest of the money if not they will charge 24% interest on balance after 15 days. I’m really terrified and not sure what to do at this point.
Â
2) They have sent me a new possession agreement which I was never aware or discussed prior to now and asking us to sing it before taking the possession. I don’t want to enter into any agreement at this point as I’m not obligated to and for which I have not agreed before. I’m attaching you the copy of the possession agreement that they have sent me and it seems to completely favor the promoter other than for few points.
Â
I’m really puzzled and shocked at this situation and kindly request you take me as your client and help me out.
Please let me know how can I futher reach your office and engage your office in helping me with this issue.
Thanks
Rajesh Padmanabhan

Vatsala Answers:
There is no blanket ban on the sales and service tax.

1. The service tax is calculated only on the villa. In Karnataka this is 2.06%. A recent circular has made this tax applicable for projects with more than 12 units. (It is not yet gazetted). This is chargeable only if the builder outsources the work of construction to outside contractors and does not build it with in house staff. The costÂ is divided into two parts, the first being material cost of the villa and the second being service cost for constructing the villa for you. Very roughly, 1/3 of the total cost of the villa (minus land cost) is shown as service cost and 12.36% is charged on this as service tax. This will work out to roughly 4.4% of the total cost of the villa. However you should determine the exact figure from a chartered accountant.Â

2. The sales tax (now called as the V.A.T. or Value Added Tax) is 8.76% of the cost of the villa.Â It differs from state to state.Â

3. Regarding the attached possession agreement, it is a fairly standard document, except for the fact that you should include a warranty clause for defects noticed up to 1 year of handing over possession stating that such defectsÂ should be rectified free of cost by the developer. You are advised to contact a chartered accountant in Chennai if you need further clarifications. You are also advised to contact a lawyer in Chennai who can send a legal notice to the developer if necessary for furnishing the bills.

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Is the customer liable to pay service tax according to the latest rule by the Government of India?

atoneplace — Mon, 07 Jan 2008 07:26:56 +0000

QuestionÂ asked by Divya k c from BangaloreUS:

Respected Mam,
My name is Divya k c, I’m basically from Kerala and I’m currently living in Bangalore. I am currently in need of a Legal consultation and support from a Real Estate expert lawyer in India who could help us with our current situation.
Myself Divya k c, my Husband Sinoj Nair who too lives here in Bangalore have bought an Appartment in Bangalore, from the Multi Group Builders.
The size of the land is 1350 sqft approximately .After registering the appartment to our individual names in late 2007 ,we singed a construction agreement with the promoter to build and deliver the house to us. We have financed the appartment through housing loans.
The builder is now close to handing over the possession of the properties and there is one issue at this point.
1) There has been around 3-4 Lakhs that’s been collected by the promoter for each of these properties towards Sales & Service Taxes. This community development at the current phase has 35 plus apartments in two or three separate blocks.

a) I had already paid most of the S&S taxes to them, As per my interpretation of the recent ruling from tax department in late 2007, the buyer is not liable for Sales & Service Taxes. When I asked them about this they said it does not apply to them and I’m still responsible for all the service taxes.So could you please help us in clarifying the follwing points.

2)Are we liable to pay serivce tax according to the latest rule.If yes how much percent?

I’m really puzzled and shocked at this situation and kindly request you take me as your client and help me out.
Please let me know how can I futher reach your office and engage your office in helping me with this issue.

Thanks in advance,
Kind Regards,
Divya, Bangalore

Vatsala Answers:

Clarification a) In a case where the builder, promoter, developer or any such person builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of the said residential complex, the contractor in his capacity as a taxable service provider (to the builder/Promoter/developer/any such person) shall be liable to pay Service tax on the gross amount charged for the construction services under construction of complex service [Section 65(105)(zzzh)
b) If no other person is engaged for construction work and the builder/promoter/developer/any such person undertakes construction works on his own with out engaging the services of any other person, then in such cases,-
â€¢ Service provider & service recipient relation ship does not exist.
â€¢ Service provided is in the nature of self-supply of services.

Hence, in the absence of service provider & service recipient relation ship & the service provided are in the nature of self-supply of services, the question of providing taxable service to any person by another person does not arise. Vatsala
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Who if anyone is liable for Service tax under construction of complex service ?

atoneplace — Fri, 04 Jan 2008 02:22:02 +0000

Question asked by Chetan from Dallas, Texas:

Whether Service tax is liable under construction of complex service [section 65(zzzh)] on builder, promoter, developer or any such personâ€”
(a)Â Who gets the complex built by engaging the service of a separate contractor, and
(b)Â Who builds the residential complex on his own by employing direct labour?Â

Vatsala Answers:
Clarification
a) In a case where the builder, promoter, developer or any such person builds a residential complex, having more than 12 residential units, by engaging a contractor for construction of the said residential complex, the contractor in his capacity as a taxable service provider (to the builder/Promoter/developer/any such person) shall be liable to pay Service tax on the gross amount charged for the construction services under construction of complex service [Section 65(105)(zzzh)
b) If no other person is engaged for construction work and the builder/promoter/developer/any such person undertakes construction works on his own with out engaging the services of any other person, then in such cases,-
â€¢Â Service provider & service recipient relation ship does not exist.
â€¢Â Service provided is in the nature of self-supply of services.

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Whether the Service tax and VAT are applicable to the customer or the developer?

atoneplace — Mon, 10 Dec 2007 06:29:46 +0000

QuestionÂ asked by MrÂ Rahul Saraswat from US:

I booked a flat 18 months back. The flat is now ready for possession; I need to do registration of the flat. Can you please suggest whether the Service tax and VAT are applicable to me? Do i need to pay service tax to the builder? There are 56 flats in this complex.
Mr. Rahul Saraswat, USA

Vatsala Answers:

In majority of cases, service tax and VAT will be applicable. It does not depend only on the number of flats but on whether the builder has outsourced the construction activity or not. Vatsala

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Whether the Service tax and VAT are applicable to the customer or the developer?

atoneplace — Mon, 10 Dec 2007 01:14:03 +0000

QuestionÂ asked by MrÂ Rahul Saraswat from US:

Vatsala Answers:

In majority of cases, service tax and VAT will be applicable. It does not depend only on the number of flats but on whether the builder has outsourced the construction activity or not. Vatsala

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