Service tax on flats for babus, Armymen

The costs of residential apartments built by contractors for the armed forces and government servants is set to rise with the finance ministry clarifying that such construction would be liable to service tax.

The 12-per cent service tax would have to be paid by contractors constructing residential complexes for the Army, Air Force and Navy personnel.

The tax would also be applicable for contractors hired by the central public works department to construct residential apartments for government servants.

"If the residential apartments being constructed fulfil the stipulations required for levy of service tax such as construction of more than 12 flats, then the tax would be applicable," a revenue department official said.

The issue was examined by the Central Board of Excise and Customs (CBEC) following a representation from the armed forces.

The Army wanted to know whether contractors for residential complexes under the "married-accommodation" project for the Indian Army personnel should be charged service tax.

It had also sought to know whether the tax could be levied on residential complexes which were for personal use by service personnel.

The CBEC examined the issue and concluded that in the absence of any exemption to a government organisation, service tax at applicable rates would be chargeable on such construction.

Officials said the CBEC was of the view that exclusion from service tax provided under the definition of residential complex in the Finance Act 1994 for complexes constructed by a person who directly engages any other person and where the construction of such a complex is intended for personal use as a residence of such person, would not be applicable in this case.