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Pay an extra 10.3% for a house under construction

business Updated: Feb 27, 2010 01:15 IST
HT Correspondent

If you are planning to buy a new house that is under construction, be prepared to shell out an extra 10.3 per cent service tax.

Finance Minister Pranab Mukherjee has brought construction activities of residential real estate projects under the service tax net, effectively bringing all under-construction properties under the ambit of service tax. “Unless the entire consideration for the property is paid after the completion of the construction, the activity of the construction would be deemed to be a taxable service...and service tax would be charged accordingly,” as per the Budget document.

The worst affected will be those planning to buy houses in metros like Delhi and Mumbai, where a lot of properties are under-construction and in all likelihood builders will pass on the tax hike to home-buyers. This means that if you are buying a house worth Rs 50 lakh, you will have to shell out an additional Rs 5.15 lakh as service tax.

“This is a regressive step by the finance minister which is going to have a negative impact on sales,” said an official of a real estate company. The move is sure to lead to an increase in prices, further resulting in an increased flow of black money into the sector, he added.

“Developers are sure to pass on the service tax increase to consumers,” said Rohtas Goel, president, Naredco (National Real Estate Development Council). The move would take away all other beneficiary effects doled out in the budget, he said.

“The budget neglects the housing sector and the worst affected would be the buyers of low-cost houses,” said Niranjan Hiranandani, managing director, Hiranandani Construction.