| Currently, under the Income Tax Act, 1961 (the | | | | construction would be deemed to be a taxable |
| ‘Act'), an individual can claim a deduction for | | | | service provided by the builder/promoter/developer |
| interest paid on housing loan for a self-occupied | | | | to the prospective buyer, and the service tax would |
| housing property for up to Rs 1.5 lakh in a financial | | | | be levied accordingly. |
| year subject to the fulfillment of certain conditions. | | | | In this context, a question arises from a buyer's |
| Furthermore, a deduction may also be claimed up to | | | | perspective whether buying a housing unit for which |
| Rs 1 lakh for repayment of principal amount of the | | | | he is making payment in installments actually involves |
| housing loan. | | | | any service being rendered per seby the builder. Also, |
| There were expectations that the above limits may | | | | it is not clear whether the proposed levy would |
| be enhanced to provide some relief to the common | | | | impact only new projects or it would even cover the |
| tax payer. No additional concessions have been | | | | existing projects where booking has already been |
| provided to the individual tax payers on this front in | | | | made by the individuals and part-payments made |
| the Budget. Some relief though has been provided to | | | | while construction is at different stages of |
| the undertakings engaged in building housing projects | | | | completion. |
| in respect of extension of time period for completion | | | | If implemented , this proposal could lead to increase |
| of such projects and relaxation in norms for built-up | | | | in prices of the property by about 3.4% of the sale |
| areas for shops and other commercial establishments. | | | | price, and not 10.3% as is being generally understood, |
| It's, however, important to note that certain | | | | since service tax on such services is payable only on |
| proposals on the indirect tax front could adversely | | | | 33% of the value of the property. |
| impact the cost of the housing projects and thereby, | | | | PREFERENTIAL LOCATION |
| increase the price of residential units. In this context, | | | | Another major setback has been the proposal to |
| following points merit attention: | | | | levy service tax @10.3% on any preferential location |
| INCREASE IN EXCISE DUTY | | | | charge or other development charges recovered by |
| In general, the standard excise duty rate of 8% has | | | | the builder except charges in relation to parking |
| been increased to 10% on all goods, including steel, | | | | spaces. Most of the housing projects have different |
| iron, etc. Excise duty on another main input of a | | | | cost components like preferential charges for certain |
| housing project, i.e. cement, has also gone up. Duty | | | | apartments due to location advantage. These |
| hike in these essential inputs would impact the cost | | | | components may now be subject to service tax. |
| of the construction since in many cases builders may | | | | This proposal is also likely to push the cost of housing |
| not be able to claim set-off of duty paid on these | | | | even further. |
| inputs. | | | | TO SUM UP |
| PROJECTS UNDER CONSTRUCTION | | | | The levy of service tax on housing projects would |
| Besides duty hikes in essential inputs, the | | | | increase the price of the housing units, if the Budget |
| government has also proposed to extend service tax | | | | proposals are accepted in the present form. One |
| to real estate, including residential units. Through this | | | | should, however, hope that at best the said |
| proposal, the government intends to levy service tax | | | | proposals are made applicable to the new projects |
| on sale of property by builder to buyer if any part of | | | | and not to the existing projects which are at |
| the consideration for the property is received before | | | | different stages of completion. As most of the |
| the completion of construction, i.e. before the receipt | | | | current housing projects have been delayed beyond |
| of completion certificate from the competent | | | | any control of the buyer, in the whole bargain, the |
| authority. In such a situation, the activity of | | | | common man should not be burdened further. |