Real estate developers associated with the Confederation of Real Estate Developers Associations of India (Credai) have urged the government to review the proposal to levy service tax on the sale of under-construction housing units. Real estate experts say the move would amount to double taxation and could also lead to a rise in property prices.
The Budget has proposed that all buyers will have to pay 10% service tax on the purchase of any apartment and/or commercial units. The tax will amount to about 3.5% of the cost of the apartment, including the value of land and the cost of construction.
“It is important to understand how the service tax can affect all stakeholders of the industry, especially homebuyers. The end users will have to bear the burden. If implemented, we would simply act as revenue collectors under the system. The additional cost will go directly to the government. We urge the government to review its decision,” says Pradeep Jain, chairman of the National Capital Region chapter of Credai.
He pointed out two serious flaws in this proposal. First, the sale of apartments or commercial spaces is sale of immoveable property and is governed by the “Transfer of Property Act”. Second, all states require buyers to pay stamp duty, 5-9%, on the transfer or sale of apartments and commercial spaces. “The payment of stamp duty and service tax on the same property constitutes a clear case of double taxation,” he added.
Earlier on 25 March, speaking at the national conference on Indian Real Estate organized by the Associated Chambers of Commerce and Industry of India, DLF Ltd chairman, K.P. Singh said, “The service tax would adversely impact the housing sector. Prices will go up.”
During the same event, responding to developers’ plea, Union minister for urban development Jaipal Reddy had announced that the urban development ministry would make a detailed representation to the finance minister Pranab Mukherjee, seeking review of the service tax proposal.
Developers are also planning to meet the finance minister in person to address the issue.
If the proposal comes through, end users will have to pay an additional 3.5% on 33% of the total apartment price.