Monday, March 1, 2010

Union Budget 2010 -11 - Builders not pleased at Service Tax, No Incentive for Affordable Housing Projects, Not Extending Project Commencement Date

The devil is in the detail for the real estate sector. Though the Budget gave sops to home buyers in the form of tax savings and interest rate subvention, it quietly brought back service tax on lease rentals in the Finance Bill.
Builders said they’d pass on the service tax burden to customers. The silver lining was that the continuation of interest rate subvention and higher disposable income in the hands of individuals through income tax reliefs would more than make up for it.
Why should builders launch affordable housing projects?
This Budget also extended the interest rate subvention on a housing loan up to Rs 10 lakh where the house price is up to Rs 20 lakh, announced in the earlier Budget, to March 31, 2011. But, many developers are unimpressed. “Overall, home sales may go up, but there is no incentive for developers to launch more affordable housing projects. Why should we?'' said Niranjan Hiranandani, managing director of Hiranandani Constructions.
Service Tax will increase the price of properties!

According to the Finance Bill, service tax would be levied for renting immovable property or any other service to such renting with retrospective effect from June 1, 2007. The service tax rate is 10 per cent now.

Buildings under construction and the leasing of vacant land would also attract service tax, the Bill says.

“The levy of service tax will increase the price of properties. This has come as a dampener, as even renting under-construction property will attract service tax now,'' says Jai Mavani, executive director and head of the real estate practice at KPMG.

Some developers are unmoved. “We will transfer the service tax to home buyers and to that effect there will not be any additional liability,'' said Sarang Wadhawan, managing director of HDIL, a Mumbai-based developer.

“One-Time Relief to Real Estate Sector''
Though the Budget allowed projects started before March 31, 2008, to be completed within five years instead of four for claiming deduction of their profits as “one-time relief to the sector'', developers and consultants said the measure does not help much. “It is unfortunate that the commencement date of March 31, 2008, has not been extended but the period for implementation has been extended by one year. Hence, the impact of the amendment would be marginal,'' said Pranay Vakil, chairman of Knight Frank India, an international property consultant.
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Realty developers not pleased at many Budget details

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  1. What does this mean for people who have booked in an under construction project? Can you state the implications in common language?

  2. add to it
    If I booked a flat in an under construction building, and paid approx 75% of total cost yet (since the agreement was wrt stage wise)
    Shall I also pay the remanant 25% by March 31 to avoid tax.