Serivce Tax in Indian Real Estate Sector

[Sarahyoung]

The recently presented Union Budget of India 2010-11 has imposed service tax on a particular type of transaction and few services offers to potential; home buyers. The summary of the service tax, imposed by the Union Budget, on to the Indian property market is as follows:

* Widening of Service Tax net:

Real Estate Developers will have to pay service tax on transactions where consideration is collected from prospective buyers prior to completion of construction. However, it seems service tax will not be applicable if the full payment is made after completion of the construction.

In addition, other services provided by the builders to prospective buyers such as providing preferential location or external or internal development charges (excluding vehicle-parking space) etc. shall also be covered.

Renting of immovable properties is also under service tax net and the definition of 'renting of immovable property service' has been clarified as well as widened to cover rent of vacant land under contract for undertaking construction of buildings or structures for business purposes. This may have negative effect on to the properties bought or to be bought solely for investment purpose. Overall, now most of the activities of Real Estate Management is now under service tax net.

Based on the above, I seek your views on the following:

I. Whether similar service tax is in existence in other countries also?
II. If is right to impose service tax at this point of time? Yes or No, Why?
III. How will it affect the actual home buyers or prospective commercial or retail property user?

Any other view is also welcome.

Thank You

sARAH

[mshah]

I think service tax concept is in India only.

No its not right to levy service tax as builder does not provide any service to buyer he is just selling his product to his customer. Even the service tax chargeable at the time of booking will not be correct as the booking may get cancelled before the construction gets over, in that case the user tends to loose the money, it has to be also seen that whether the service tax has to be paid on total contract price in one shot or as and when the payments are being released to builder.

Service tax will be additional burden to the actual home buyer or to the investor, thus the cost of premises will get increased, if by any reason the deal is cancelled the buyer will loose the money paid towards service tax as he will not get any refund from Income-tax department.

These are sme of the initial drawbacks but after the proposal gets approved from the cabinet and after going through the actual act the correct picture can be drawn.

[Sarahyoung]

Thanks for your reply.
However, you should also note that the in general service tax is levied only on 33% of the total cost. Also, the new service tax have been levied on specified transactions only. But i agree with you, let the picture be clear further.

Thank You