Reddy seeks review of proposed service tax for housing sector

News Posted - 2010-03-26

The urban development ministry will ask the finance ministry to review the proposal to bring the housing sector under the service tax net from April 1, 2010.

“We will approach the finance minister in the next few days and ask him to review his decision of bringing housing under the service tax net,” said Urban Development Minister S Jaipal Reddy. He was speaking at a conference on Indian Real Estate organised by Associated Chambers of Commerce and Industry of India (Assocham).

Real estate players and various industry chambers are already lobbying the government to withdraw the service tax imposed on the housing sector (at 3.3 per cent, with abatement) , as it would discourage buyers.

"This is not the right time for service tax implementation as the government’s objective is to encourage people to own houses. We have to wait for another month or so to see if the finance ministry listens to our request,” said KP Singh, Chairman, DLF Group.

Addressing issues faced by the real estate sector today, the Reddy said availability of land — which is a state subject — has become a major concern. “If we want India to cater to the issue of demand and gap in the housing sector, apart from the central government, it is the state government which should become the facilitator.”

He also said since land is very limited, the best way forward is to go for vertical development (building high-rise buildings) instead of the present approach of going horizontal. “In Delhi, we would allow vertical development of real estate dwellings in older areas and remaining sprawl of Delhi provided the Municipal Corporation and Delhi (MCD) assure availability of all basic amenities such as water, power, etc.”

In this regard, Reddy said the Ministry of Urban Development would soon come out with a new relaxed Floor Area Ratio (FAR) regime without specifying any time frame for it.

Another pertinent point that has been a concern for real estate developers is the number of clearances one has to take to start a project. “Today, there are more than 50 agencies from where we have to take our clearances. We have to ensure that the best way forward is to have a single window system as it would not only save time, but also ensure transparency,” said Navin M Raheja, Managing Director, Raheja Developers Ltd.

“It is very important to have a single window clearance system in real estate sector,” echoed Anil K. Agarwal, Past President, Assocham.

Singh feels if real estate and urban development has to reach a self-sustaining level in India, “we have to follow the way it has been done in the telecom and IT sector”. “We need to have a visionary like Sam Pitroda, who can think centuries ahead in the real estate and urban development sector to formulate policies. Today, we are concentrating on meeting shortages, when policies are being framed. This needs to change fast, as we have to take the aspirations of people when we build a nation.”

Source: Business Standard 27/3/10

Reconsider service tax on housing complexes- Reddy Requests Mukherjee

Union urban development ministry has urged the finance ministry to take a re-look at the service tax imposed on housing complexes under construction as it feels that the levy will push housing out of the common man’s reach and hurt the real estate sector, which is yet to recover from the global economic slowdown. Urban development minister S Jaipal Reddy, who met finance minister Pranab Mukherjee on Thursday, is believed to have argued for keeping real estate out of the service tax net as it may shoot up housing prices hitting the common man badly.

Sources said the UD minister told the FM that the real estate sector in the country is yet to to come out of the impact of global recession and this is not the right time to burden it with another tax. Realty players and many industry chambers have been urging the government to withdraw the service tax imposed on the housing sector (at 3.3%, with abatement), as it would discourage home buyers. It would also hit the sector which is recuperating from the impact of economic slowdown.

“The urban development ministry feels the proposal of service tax made in the Budget needs review. I am recommending the review of the proposal by the finance ministry,” UD minister had said in past at an industry chamber’s meet. Mukherjee had in Budget 2010-11 brought development of real estate complexes under the ambit of service tax from April 1, 2010 unless the entire consideration for the property is paid after completion of construction.

“In the construction of complex services, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service,” the Budget proposal said.

Source: Indian Realty News 16/4/10