Budget blues for realty

Normal 0 false false false EN-US X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-qformat:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:"Calibri","sans-serif"; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-fareast-font-family:"Times New Roman"; mso-fareast-theme-font:minor-fareast; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} Servicetax burden imposed by the Union Budget on realty transactions will affect thesector, says Prabhakar Sinha     TheUnion Budget 2010-11 is a big disappointment to the middle-class urban housingsector . However,it has bet on the economic growth to drive demand in the sector. By tweakingthe income slab, finance minister Pranab Mukherjee has put some extra moneyinto the pocket of middle-class tax payers. A person having an income of Rs 5lakh per annum is likely to gain Rs 20,600 per annum from the provision. But,if his income is more than Rs 8 lakh, his annual gains will be around Rs51,500. These are a big booster to the economy as they will increase thepurchasing capacity of individuals. Ultimately, tax saving is equivalent tomoney earned. Service tax on apartments under construction      But at the same time, the finance minister hasimposed service taxes on a number of services related to the realestate sector .Anshuman Magzine, MD of global consultancy firm CBRE Asia, says that theseprovisions will be a dampener and affect the revival of the real estate sector.Another realty consultancy firm, Knight Frank, also said that it would affectthe sector adversely.     According to a budget provision, in cases where a propertyunder construction is bought and a consumer makes payment over a period of time, then it willattract service tax. “In the ‘Construction of complex service’, it is beingprovided that unless the entire consideration for the property is paid afterthe completion of construction (that is, after receipt of completioncertificate from the competent authority), the activity of construction wouldbe deemed to be a taxable service provided by the builder/promoter/developer tothe prospective buyer and the service tax would be charged accordingly,” readsthe provision.     A senior tax consultant of KPMG says that this clearlymeans that if a house or apartment is sold before the completion ofthe construction, a buyer will have to pay the service tax. In fact, SunilMitra, revenue secretary, said that even if a house is already sold but thecompletion certificate could be secured from the concerned authority in 2010-11or after March 31, 2010, the service tax would be levied on such transaction.According to tax experts, this will lead to a tax outgo of 3.4% of the salevalue of the house. Mitra also confirmed that the department would allow anabatement of 67% on the value of house to calculate the service tax at the rateof 10.3%.     This means, if you have bought a house for Rs 50 lakhat the time of launch of a project, your tax liability would be Rs 1.70 lakh.However, with the service tax levied from service provider, a senior buildersaid they would pass on the liability to the customer. He said that since theyhave started launching affordable apartments , the margin is so thin that theywould not be able to absorb them.     The budget has also included the renting of immovableproperty under the service tax net. Knight Frank says that this will have anegative impact on the real estate sector. The levy of service tax will impactrented commercial property with retrospective effect from June 1, 2007. Even incases where a developer takes land on lease and pays lease rent, the lease rentwill attract service tax. Preferred location will be taxed      Interestingly, the differential charges for higherfloor, or for preferential view, better spaces, etc will also attract servicetax. “Certain additional services provided by a builder to prospective buyerslike providing preferential location or external or internal development ofcomplexes on extra charges. However, service of providing vehicle-parking spacewould not be subjected to tax,” the new provision says. However, there are somepositive aspects also, which will benefit the constructionsector as awhole. Hotel industry gets a boost     According to a new provision, all new hotels of 2-starand above category will be benefited because of the investment-linked deduction– 100% of the capital expenditure incurred by a hotel can be reduced fromtaxable income. This will enhance the returns for developers of hotel projects,says Knight Frank. “The provision will enable investments in the hospitalitysegment and boost supply in the organized sector. It aims to provide support tothe hospitality sector in expectation of growth in tourism and both businessand leisure travel,” says Anurag Mathur, MD of Cushman & Wakefield India. Relief under 80 IB      The budget has also given relief to developersunder Section 80 IB (10). It has provided the extension of income tax exemptionfor housing projects by one year. It will give a relief to projects that weredelayed during the slump. These projects should have been sanctioned on orbefore March 31, 2008 and be completed in five years. Similarly, the provisionfor commercial establishments has been increased from 5% or 2,000 sq ft ofbuilt-up area, whichever is less, to 3% or 5,000 sq ft of built-up area,whichever is higher. Therefore, at least 5,000 sq ft of shop establishments cannow be developed in these projects while continuing to remain eligible forincome tax exemption, says Knight Frank.     The relief to developers by allowing extension forclaiming deduction of their profits within a period of five years under thesection, says Mathur, would help those developers who were impacted by theglobal financial crisis last year. This announcement is likely to provide abreather for developers who were finding it difficult to complete projects dueto liquidity crunch.     However, on the other hand, the announcement may be acause of concern for the consumer/end user as relief extended to developersmight result in further delay in project completion. In addition, it issuggested that the norms for built-up area of shops and other commercial establishment in housing projects will be relaxed to enable basicfacilities for the residents. Interest rate subvention      Interest rate subvention of 1% will continue tobenefit individuals borrowing up to Rs 10,00,000 for residential propertycosting not over Rs 20,00,000 for one more year, and this will continue to helpaffordable housing. Mathur said that the continuation of the interest ratesubvention on loans for low-cost housing would further provide a stimulus tothe demand for low-cost housing. However, the real positive impact of thismeasure would be experienced only in peripheral locations of Tier 1 cities andin Tier 2 and 3 locations.     Higher allocation for Rajiv Awas Yojana and Indira AwasYojana will benefit residential sectors aimed at economically weaker and LIGsegment in both urban and rural centers, says Knight Frank. Increasedallocation under schemes like Rajiv Awas Yojana, Bharat Nirman, Indira AwasYojana, amongst others, is expected to reduce the demand to supply gap forlow-cost housing and is also expected to provide increased opportunity fordevelopers to participate in government led projects, Mathur said.     Another positive aspect in the budget for the realestate sector isthe impetus to SEZs, which will be beneficial and have a cascading impact onthe sector by way of development of satellite townships and cities. Courtesy:-Times Property dt:- 06-Mar-2010 For more information regarding apartment in mumbai, bedroomapartments, buy property in india, commercial complex in india, commercial realestate, commercial space in mumbai, dealers, flats for sale, indian real estateinvestment, investment options in real estate, luxurious flats, malls, officespace, office space in mumbai, online real estate, penthouses mumbai, plots,property consultants, property in mumbai, property india, property investment,real estate company, real estate developer, real estate mumbai, real estate inindia, real estate investment strategies, real estate market, real estate news,real estate portals, realtors, realty, residence, residential real estate, sellproperty, shop, villas, Residential Apartment   Visit    www.zameen-zaidad.com             www.propertycafeteria.com  

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• BUDGET BLUES FOR THE REALTY SECTOR?

  Service tax burden imposed by the Union Budget on realty transactions will affect the sector. Read on to know what are the pluses and the minuses of the new budget

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