Buying a home, especially in the metropolitan cities, will now turn costlier with an increase in service tax by the finance minister P Chidamabaram.
The increased service tax rates would largely affect mid-and large sized houses with carpet area over 2,000 square feet and luxury
homes priced over rupees one crore.
"Homes and flats with a carpet area of 2,000 square feet or more of a value of Rs. 1 crore or more are high-end constructions where the component of 'service' is greater. Hence, I propose to reduce the rate of abatement for this class of buildings from 75% to 70%," Chidambaram said in budget speech.
The reduction in abatement from 75 to 70% implies that the service tax would be now be levied on 30% value of the price of an apartment. Till now the service tax was levied on 25% of the value of an apartment's price.
The changed service tax rates come into effect from March 1, 2013.
"An apartment that costs more than Rs. 1 crore will now be more expensive by around Rs. 61,800," said an analyst at consultancy firm Deloitte.
The service tax was earlier levied on a value of 33% of the price of an apartment that was reduced to 25% in last year's budget.