The Central Board of Excise and Customs (CBEC) has said in a circular that property developers need not pay any services tax until the actual sale of the property is realised. This means that despite entering into contract with buyer, developer will not pay any tax on the construction of property which could be considered as services provided to buyer.
However, since the contract between developer and buyer is regarding purchase of a completed property, all the construction activity undertaken by the builder until completion of project are actually services rendered to one self. Taking into consideration this factor, the CBEC has said that developer will have to pay tax only on services that are provided to buyer after handing over the property to him.
A number of real estate associations had earlier approached the government to get the matter cleared. Some quarters in the tax authorities believed that after the sales agreement was finalised, all services rendered in the construction activity should attract services tax. However, the issue has now been cleared by the CBEC and developers will not need to pay any services tax until actually sale is realised signified by transfer of ownership to the buyer.