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03-18-2012, 09:42 AM #1
Budget 2012: Buying, building of house to cost more due to hike in service tax
Purchase or construction of a house would now cost more due to expected rise in prices of key raw materials cement and steel and a hike in service tax by 2 per cent, realty players said.
Barring low-cost housing, property prices are expected to rise in the coming days after the proposed hike in service tax from 10 per cent to 12 per cent.
TDS at the rate of 1 per cent on transfer of immovable property (other than agricultural land) above a specified threshold will also add to the cost of buying a house. The threshold would be over Rs 50 lakh an urban areas and Rs 20 lakh elsewhere, according to the budget proposals.
Cement and steel manufacturers have already hinted at a price hike after the Budget proposed raising the excise duty to 12 per cent.
Commenting on the budget proposals, Confederation of Real Estate Developers' Association of India (CREDAI) Chairman Pradeep Jain said, "Application of TDS on the purchase and sale of property and increasing Service Tax by 2 per cent will further add on to the overall cost of property and are bound to make property more costly in coming days."
Realty consultant DTZ said that increase in the service tax is going to further increase marginally the overall burden on the home buyers of mid and high segment (dwellings costing more than 25 lakh). The impact of service tax would be about Rs 40,000 on a Rs 75 lakh home.
However, DTZ said that affordable housing, being part of negative list, is exempted from service tax and the move would give a boost to the affordable housing segment.
Jones Lang LaSalle India Chairman and Country Head Anuj Puri said that "the increase in the service tax rate from 10 per cent to 12 per cent will increase the cost of production for developers, who are already reeling under high input costs. It follows that this increased burden will be passed on to end users".
Omaxe Chairman Rohtas Goel noted that budget would give boost to affordable housing, but felt that "what nullifies the above positivity is an increase in service tax and excise duty to 12 per cent each resulting in an increase in cost of raw material".
In Budget for 2010-11, Finance Minister Pranab Mukherjee had brought development of real estate complexes under the ambit of service tax unless the entire consideration for the property is paid after completion of construction.
Complex is defined as consisting of more than 12 residential units.
The service tax is levied on 25 per cent of the gross sale value of property.