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Mega Exemption for Construction of single residential unit and  its sub-contract

Service Tax - By: - Siva Rama - Dated:- 13-2-2017 Last Replied Date:- 15-2-2017 - Mega Exemption for Construction of single residential unit and its sub-contract Mega exemption for construction of single residential unit Introduction Food, clothing and shelter are the basic necessities of human life. As a social incentive measure, the Government has granted exemption from service tax in respect of services by way construction of a single residential unit if it is designed for residential purpose .....

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, erection, commissioning or installation of original works. There is no exemption for completion, fitting out, repair, maintenance, renovation, or alteration of single residential unit. Contract given by land owner Owner of land generally gives contract for construction of residential unit to one contractor who carries out all the works related to construction and hand over the completed house which is usable by the owner as agreed in the contract. For example - The contractor carries out all t .....

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oundation and basement to another contractor, roofing to another, partition wall to another etc. He will give the whole contract of construction to one contractor and relax. Real intention of giving exemption The real intention behind granting this exemption is that one house with basic facilities is the necessity of life and common people should not be burdened with extra cost by way of service tax. So this exemption is not for any luxuries forming part of a house. Only those construction activ .....

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y luxurious work can be included in the contract. That border or break is the completion certificate granted by competent authorities. So all those activities which are mandatory to get a completion certificate should be considered as basic construction activities and are eligible for exemption under entry 14(b) of mega exemption. All those activities which are not essential to get a completion certificate are completion and finishing services and luxurious services. So no exemption should be gr .....

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mmissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of- Entry No 12A Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of- Entry No 13 Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alterati .....

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EGA-EXEMPTION FOR SUB-CONTRACT WORK RELATED TO CONSTRUCTION OF SINGLE RESIDENTIAL UNIT Introduction In construction industry, the original contractor generally does not carry out all the work on his own. He will allot some portion of work to another contractor who is called as sub-contractor who carries out work on behalf of main contractor. Sub-contractor always has this question in their mind. Why should I (subcontractor) pay service tax since main contractor is already paying service tax? I a .....

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service which is used for providing main service. Section 66F (1) Unless otherwise specified, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service. Take our example. Here the main contractor is providing services by way of construction of single residential unit. Main contractor is exempted under entry no 14(b). Assume main contractor obtained consulting engineering service related to construction of si .....

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rvice by way of construction of single residential unit) shall not include reference to a service (here consulting engineering service) which is used for providing main service (here service by way of construction of single residential unit). It has to be appreciated that the wording used in the exemption are service by way of construction. The service provided by consulting engineer is service in relation to construction of single residential unit. It would not automatically lead to the classif .....

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9: Services by the following persons in respective capacities- (h) sub­contractor providing services by way of works contract to another contractor providing works contract services which are exempt The points which are important in this entry are Service is by the sub-contractor Service provided by sub-contractor is work contract service (that is involvement of both material and labour. Pure labour contract is not work contract service) In our example (see the example quoted above), the mai .....

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ractor (Subcontractor constructing 1 out of 3 houses)(i.e. Subcontracted whole of one work) Context 3 Contract between main contractor and sub-contractor (Subcontractor doing wall partition and base flooring)(Sub contracted part of one work) Context 4 Contract between main contractor and painter (Whether pure labor contract or work contractor) Context 5 Direct contract between house owner and electrician Context 6 Contract between main contractor and electrician (Electrician here is a work contr .....

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h entry 29(h) because; he is not work contractor, but a pure labour contractor. Entry 29(h) is available only for work contractor. Context 2 - Contract between main contractor and sub-contractor (Subcontractor constructing 1 out of 3 houses) (i.e. Sub-contracted whole of one work) Suppose the main contractor has obtained contract from three different parties for construction of single residential unit at three different places. And the main contractor wholly sub-contracted construction of one ho .....

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of construction of single residential unit. Only difference is, main contractor is doing for three houses. Sub-contractor is doing it for one house. Context 3 - Contract between main contractor and sub-contractor (Subcontractor doing wall partition and base flooring) (Sub contracted part of one work) Suppose the main contractor has obtained contract for construction of three houses. He did ground leveling, foundation, basement, superstructure, roofing of first house. That is he did the skelton .....

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to main contractor who is exempt under entry no 14(b) of mega exemption. So he is entitled to enjoy the benefit of entry no 14(b) through entry no 29 (h). Context 4 - Contract between main contractor and painter (Whether pure labour contract or Work contractor) Painting work is not an essential criterion for getting completion certificate from competent authority. Also painting cannot be considered as essential thing for construction of house. Even without painting the walls, one can occupy hous .....

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putty, or with weather proof paint or with fire retardant paint, is not at all a criterion for getting completion certificate. Works that can be carried out even after getting completion certificate like completion and finishing services are not eligible for mega exemption under entry no 14(b). Under Service Tax (Determination of Value) Rules 2006 as amended with effect from 1st October 2014 , Rule 2A(ii) category (B), standard deduction scheme, it is provided that service tax shall be payable o .....

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ce or repair or reconditioning or restoration or servicing of any goods; or (ii) maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property, service tax shall be payable on seventy percent of the total amount charged for the works contract . Note - Painting is not generally possible without plastering of wall. Plastering itself is categorized in completion and finishing service. Th .....

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enjoy exemption. He is not eligible to enjoy entry no 29(h) of mega exemption. The question of entry no. 29(h) even does not arise here. Context 5 - Direct contract between house owner and electrician Assume that the house owner, while giving contract for construction of his house to main contractor did not give contract for electric work. The house owner entered into a separate agreement with an electric contractor for wiring his house and fitting electrical items. Here the electrician is not .....

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al unit, but it is service in relation to construction of residential unit. So by simply applying section 66F, the sub-contractor is not eligible to enjoy mega exemption entry 14(b). Now whether the main contractor can tell electrician that, you are my subcontractor work contractor and you are eligible for exemption under entry no 29(h), because I am providing exempted service and please don t charge service tax when you are rising bills on me. Entry No 29(h) is speaking about sub-contractor and .....

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s to reduce the current workload are expected to include the outsourcing of some planning work to the private sector. (Cambridge dictionary) A person or company that does part of a job that another person or company is responsible for (Cambridge Dictionary) Outsourcing is procuring services or products from an outside supplier or manufacturer A contract that assigns part of the obligations of an existing/prior contract, to a sub-contractor Automobile manufacturers do not manufacture all the comp .....

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ually temporary- subcontract until you find the right full time person to do the job (Quora) Source: Internet On analyzing the difference between sub-contract and outsourcing, it can be seen that contractors generally sub-contract his core activities and outsource his non-core activities. Generally those works a person can do on his own, but cannot be done under a particular circumstance are sub-contracted. The work done by sub-contractor is known to and usually done by the main-contractor. It i .....

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