Realty prices to soar as service tax hike kicks in from July

News Posted - 2010-03-07

2.5% Hike Expected in Housing Prices

Real Estate Industry on Thursday hailed the concession announced by the government on service tax but said housing cost will still go up by about 2.5 per cent. However, the developers were disappointed that their demand to exclude land cost while calculating the service tax was not met. In his reply to the Lok Sabha, finance minister Pranab Mukherjee on Thursday offered tax relief on the construction of real estate complex, which has been brought under ambit of service tax, by increasing the rate of abatement from 67 per cent to 75 per cent of the gross value, including the land value.

“It’s a good relief for small buyers,” DLF group executive director Rajeev Talwar said. He, however, said the industry was asking for more concessions, mainly exclusion of land cost from the service tax component. CREDAI, the apex realtors body, chairman Kumar Gera said “its unjust because the abatement which is meant to cover land cost is not fair”.

Gera said land cost should have been excluded from the service tax. He said the property prices would increase by about 2.5 per cent as the tax is always payable by consumers. Parsvnath Developers chairman Pradeep Jain also thanked the finance minister for the relief and hoped that the government will consider excluding land cost at a later stage. Omaxe Chairman Rohtas Goel also expressed similar views saying it would have been better if land cost would have been excluded from the ambit of service tax.

“Reduction of abatement to 75 per cent will reduce slight burden on customer, but still buyer has to pay extra 2.57 per cent approximately,” Raheja Developers managing director Naveen Raheja said. With on Thursday’s announcement, service tax of 10 per cent will be levied on 25 per cent of the gross sale value of property compared to 33 per cent proposed in the budget in February this year. This means property prices would rise by about 2.5 per cent.

Source: Indiarealtynews 30/4/10

New Delhi: If you are planning to buy a house, grab it before July, as realty prices are set to increase later. The service tax of 3.3%, announced in the Budget, will be effective on your home from July as the amendments to the Finance Bill will be put into effect in June.

Moreover, banks have decided to increase interest rates in the range of 0.25-0.5 percentage points on home loans, which could further be hiked in the forthcoming credit policy.

Companies including realty majors like DLF, under the aegis of Delhi-based real estate body National Real Estate Development Council (Naredco), will soon approach the FM for a rollback of service tax.

The property prices are expected to go up with real estate companies passing on the additional burden to buyers. Effectively, someone buying a house property in Delhi will have to pay a service tax of 3.3% on the price of the accommodation and also a stamp duty of 8% as a sale of immovable property. The 3.3% tax will not include the amount to be paid towards special charges like garden facing or community hall facility as these charges will be taxed at 10% of the total charges. However, Sanjay Chandra, MD of country’s second-largest realty firm Unitech says an increase in interest rates is unlikely to affect the demand as the increase is only in trigger rates and hence there is no change in effective interest rates.

“The service tax will have some marginal impact, but the market will absorb that for two reasons. One, the change in personal tax slabs will leave more disposable income in the hands of consumer and second, the better prevailing economic conditions are likely to result in at least 10% increase in the salaries of the working class for the next financial year. These two facts will more than offset the marginal impact of service tax, which is expected to be 2% to 3%,” he said.

When contacted, Naredco president and realty company Omaxe’s group chairman Rohtas Goel said, “We will hold a meeting of the association to discuss the Budget proposals, particularly levying of the service tax on housing, which will have a negative impact on the realty sector.”

However, finance ministry officials have said they won’t entertain any request for change in the Budget proposal. Central Board of Excise and Customs member YG Parandhe said, “We are not taking up.

Source: Financial Express 6/3/10