BUDGET BLUES FOR THE REALTY SECTOR

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Read on to know what are the pluses andthe minuses of the new budget The Union 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 thesector. By tweaking the income slab, finance minister Pranab Mukherjee has putsome extra money into the pocket of middle-class tax payers. A person having anincome of Rs 5 lakh per annum is likely to gain Rs 20,600 per annum from theprovision. But, if his income is more than Rs 8 lakh, his annual gains will bearound Rs 51,500. These are a big booster to the economy as they will increasethe purchasing capacity of individuals. Ultimately, tax saving is equivalent tomoney earned. Service tax on apartments under construction     But at the same time, the finance minister has imposedservice taxes on a number of services related to the real estate 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 affect the sectoradversely. According to a budget provision, in cases where a property underconstruction is bought and a consumer makes payment over a period of time, thenit will attract service tax. "In the 'Construction of complex service', itis being provided that unless the entire consideration for the property is paidafter the completion of construction (that is, after receipt of completion certificatefrom the competent authority), the activity of construction would be deemed tobe a taxable service provided by the builder/promoter/developer to theprospective buyer and the service tax would be charged accordingly," readsthe provision. A senior tax consultant of KPMG says that this clearly meansthat if a house or apartment is sold before the completion of the construction,a buyer will have to pay the service tax. In fact, Sunil Mitra, revenuesecretary, said that even if a house is already sold but the completioncertificate could be secured from the concerned authority in 2010-11 or afterMarch 31, 2010, the service tax would be levied on such transaction. Accordingto tax experts, this will lead to a tax outgo of 3.4% of the sale value of thehouse. Mitra also confirmed that the department would allow an abatement of 67%on the value of house to calculate the service tax at the rate of 10.3%. This means, if you have bought a house for Rs 50 lakh at thetime 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 builder said theywould pass on the liability to the customer. He said that since they havestarted launching affordable apartments ,the margin is so thin that they would not be able to absorb them. The budgethas also included the renting of immovable property under the service tax net.Knight Frank says that this will have a negative impact on the real estatesector. The levy of service tax will impact rented commercial property withretrospective effect from June 1, 2007. Even in cases where a developer takesland on lease and pays lease rent, the lease rent will attract service tax.   Preferred location will be taxed     Interestingly, the differential charges for higher floor, orfor preferential view, better spaces, etc will also attract service tax."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 aresome positive aspects also, which will benefit the construction sector as awhole. Hotel industry gets a boost     According to a new provision, all new hotels of 2-star andabove category will be benefited because of the investment-linked deduction -100% of the capital expenditure incurred by a hotel can be reduced from taxableincome. This will enhance the returns for developers of hotel projects, saysKnight 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 & WakefieldIndia. Relief under 80 IB     Thebudget has also given relief to developers under Section 80 IB (10). It hasprovided the extension of income tax exemption for housing projects by oneyear. It will give a relief to projects that were delayed during the slump.These projects should have been sanctioned on or before March 31, 2008 and becompleted in five years. Similarly, the provision for commercial establishmentshas been increased from 5% or 2,000 sq ft of built-up area, whichever is less,to 3% or 5,000 sq ft of built-up area, whichever is higher. Therefore, at least5,000 sq ft of shop establishments can now be developed in these projects whilecontinuing to remain eligible for income tax exemption, says Knight Frank. The relief to developers by allowing extension for claimingdeduction of their profits within a period of five years under the section,says Mathur, would help those developers who were impacted by the globalfinancial crisis last year. This announcement is likely to provide a breatherfor developers who were finding it difficult to complete projects due toliquidity crunch. However, on the other hand, the announcement may be a causeof concern for the consumer/end user as relief extended to developers mightresult in further delay in project completion. In addition, it is suggested that the norms for built-uparea of shops and other commercial establishment in housing projects will berelaxed to enable basic facilities for the residents. Courtesy:- ET Realty dt:- 19-03-2010 Forinformation about real estate, real estate india, Indian real estate property,property in india, Indian property, apartments, apartments for sale, apartmentsfor buy, apartments for sale in delhi, apartments for sale in gurgaon,apartments for sale in indirapuram, flats for sale in delhi, homes, homes forsale, houses for sale, homes for sale in delhi, homes for sale in gurgaon,houses for sale in delhi, houses for sale in gurgaon, property investmentoptions in delhi, investment option in real estate, real estate consultant,real estate agents, real estate developers and many more   log on   to http://www.zameen-zaidad.com and http://propertycafeteria.com/  

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