According to the previous provisions, a works contract is a combination of transfer of goods and services. According to the old law, works contract is composed of three types of taxable activities which include the supply of goods and also the supply of services. The place of service determines in which jurisdiction the particular works contract comes into.
In simple words, a work contract is basically an agreement of service which may likewise include the supply of products in the execution of the agreement. Generally, a work contract is associated with both immovable and movable properties. Valuation of the work contract assistance is dependent upon whether the contract includes the transfer of property as the part of work contract. Works contract is always an area for litigation on different matters such as valuation, classification etc.
Under the present service tax laws, normally, it is the supplier of the services, who has to collect the service tax from its clients/customers and deposit the same with the government. Under the service tax regime, the developer is required to pay taxes on certain services that are availed by him. Under the service tax regime, there are two categories on which, the reverse charge mechanism will apply. Under normal circumstances a tax invoice is provided by a supplier to the customer. How the worker is paid is also another key factor.
How Buyers, Builders Avoid Paying Gst On Under Construction Flats | Duration 1 Minutes 37 Seconds
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Relevancy of place of supply provision is that the tax goes to the state where the services are consumed. You have stated that an individual involve construction service. The reduction in rates will give a boost to housing for all and fulfill aspirations of the neo-middle class, he said. This basically implies that a single activity has many facets attached to it which requires it to be taxed under various laws. In the previous regime, works contract was treated as a combination of goods and services. For simplicity, any contract in relation to immovable property which involves supply of material and supply of service will be classified as a works contract. Though we presume that the interpretation of above definition will be simple and will not involve litigation, the issue cannot be considered to be so simple. For tax purposes, the process of buying an under-construction property was seen as buying a service from a builder. Given that mid and luxury housing segments have been witnessing a lull for the last few years, affordable housing is the segment where developers see a lot of demand coming from. Therein entry 5-covers sale of land and sale of completed building/constructed unit, which is consequently excluded from tax levy. A property that is under construction is governed by the works contract.
But will this reduce or increase the price of properties? Earlier, both developers and homebuyers received benefits under the abatement scheme (reduced tax rate under a special scheme). The works contractors or construction companies undertake many different activities nowadays like advisory, manpower supply, construction of bridges etc. Since company is operating both within and outside the state, then hence they need to transfer certain goods machines to another state. This distinction between personal consumption and business consumption could very well become a litigious issue.
There are, of course, exceptions carved out for all these cases.