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Realtors to take up rollback of service tax with FM

Published & Updated as on - 2010-03-11

Blaming the finance minister for failing to provide an overall and clear stimulus to the housing and real estate sector, the apex body of the organised real estate builders and developers, Confederation of Real Estate Developers Association of India (Credai) has said that the imposition of service tax will dampen the growth of the entire industry.

Credai is planning to meet the finance minister to request him to roll back the service tax imposed on the realestate sector. In the context of India’s phenomenal housing shortage of approximately 24.7 million units and a huge need for space infrastructure to support its growth, Credai said the Budget has failed to adequately support the sector and hampered its efforts to reach its potential. Kumar Gera, chairman, Credai said, “I would say this Budget, by and large, is one in which’ status-quo’has been maintained for the real estate sector.

The issue of applicability of service tax to all under-construction flats and homes being booked before their completion will increase the end cost and this will significantly impact affordability of the home buyer”.

Gera added that the Budget had also failed to address the larger issues facing the country, in terms of an urgent need to meet the shortage in housing, which was last estimated at a staggering 24.7 million units in urban India alone. Despite the government’s stated desire to address this shortage through a PPP model, the Budget has made no provision to provide incentives that will attract private developers to take up more affordable housing initiatives. The high expectations for a push through incentives for slum redevelopment or slum eradication schemes in the Budget have also been missing.

According to a release by the body of realtors, Credai sees two serious flaws in service tax provision. First, the sale of apartment or commercial spaces is a sale of immovable property and is governed by the Transfer of Property Act. It cannot, therefore, also be a service attracting ser­vice tax. Second, all states require buyers to pay stamp duty on the transfer or sale of apartments and commercial spaces and this ranges from 5-9 % across the country.

The payment of stamp duty and service tax on the same property constitutes a clear case of double taxation.The national habitat policy governs the policy of development of housing in the country, which urges all state governments to reduce the stamp duty and bring it down to 2-3 %. Imposing a new tax is contrary to the declared policy of reducing the transaction costs on the sale of immovable property.

Santosh Rungta, president, Credai, said, “The issue of applicability of the service tax levied on renting of commercial property and on under-construction units is a major area of concern for developers. This tax will be an additional burden and project costs will shoot up by 4-5%. Con­sumers, will will be most affected when this increased cost will be passed on to them. Indirect taxes on raw materials for the industry will fur there scalate project costs.”

Source: The Financial Express 10/3/10

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