The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has urged the Finance Minister to withdraw Service tax amendments in the Finance Bill for 2010-11 as they will not only lead to additional tax burden on home purchases but also adversely impact recovery of entire real estate sector.
In it’s Post Budget Memorandum submitted to the Finance Ministry by the ASSOCHAM, it has been highlighted that real estate sector has gradually started returning to normalcy for the last couple of months and imposition of service tax on immovable property in such circumstances would increase cost of housing by 4%. In addition, it would also make the entire housing facility costlier to end-consumer and will be contrary to government’s aim of providing affordable housing.
In a statement, Mr. D S Rawat, Secretary General ASSOCHAM said that the levy of service tax on preferential locations charges on which appropriate stamp duty is paid will also increase the cost of housing to the customers. Preferred Location Charges (PLC), according to ASSOCHAM is not a service. It is just a differential pricing for a product which is better located. The located difference between a higher PLC and non-PLC apartment is the location.
Similarly, external development charges (EDC) and internal development charges (IDC), are the charges actually spent on the overall development of the colony. Some of them are spent by state government and some by developer/builder. Since the rules exempt the EDC paid to the government, their does not seem to be any rational to treat the balance EDC/IDC as service, since it is actual cost on the overall project, felt Rawat.
In respect of commercial or industrial construction also, the construction itself has been deemed as service if the builder receives an advance prior to the Competition Certificate from Competent Authority.
The ASSOCHAM has pointed out that a brief calculation mentioning the impact of indirect taxes to whole project sourced that the overall indirect tax impact on any immovable property is approximately 16% + of the total project costs today and this will jump to almost 20% post these amendments.
Therefore, withdrawal of service tax amendments introduced in Finance Bill for 2010-11 makes a sense as the total incidents of taxation on real estate sector would exceed 30% if the suggested service tax withdrawal is not done. In addition, stamp duty and service tax is double taxation and hence increases the cost of housing to the consumers.
The ASSOCHAM has also pointed out that as per Circular No.108/02/2009-ST of dated January 29 2009 clearly spells out that service is not payable on sale of immovable property, as any service provided in connection with the construction of residential or commercial complex till the execution of sale deed would be in the nature of self service and hence will not attract service tax.
It is however pointed out the sale of immovable property is subject to applicable stamp duty by the respected state governments. The levy of service tax on the sale of immovable property in such circumstances would increase cost of housing to customers and make the entire housing facilities costlier and therefore it should be withdrawn.