The service tax conundrum

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;}                             Thanks to the proposed levy ofservice tax on developers, the realty market is abuzz with speculation over itsimpact on property rates. Syed Amir Ali Hashmi checks out the likely repercussions Illustration:Abhimanyu Sinha   This year's budget has left aspiring home buyers in a tizzy. Ashok Kumar, a chartered accountant, can'tdecide if he should wait and watch or buy his dream home. He fears he will loseout thanks to the price rise that the new service tax on realestate developers is likely to bring about. Just likeKumar, a number of people are seeking clarity on changes in price and demandthat are likely to result from the 10.3 per cent spike in costs that developerswill now incur. Experts are unanimous in their viewson the new tax impact. Prashant Kaura, founder and director, GenReal, says,"The impact of the service tax will be passed directly onto the buyer,resulting in an increase in real estate prices .So, for projects under construction, we will see a marginal price increase. Taxexperts anticipate the increase to be about 3.4 per cent of sale value." Agreeing to this, Avinash Narvekar,tax partner-real estate practice, Ernst & Young, says, "In casedevelopers are dissuaded from accepting pre-sale advances because of theadditional service tax liability, they may have to look for funding from banksto complete their projects. This could, in some instances, escalate the cost of projects." Sanjay Dutt, CEO business, JonesLang LaSalle Meghraj, feels that the benefits implied by the tax savings andinterest rate subvention will, to some extent, be negated by the service taxlevied on properties in preferred locations and construction costs ofyet-to-be-completed buildings. "Builders are likely to pass on thisadditional burden to customers by increasing property prices proportionately," he says. Differing slightly with the aboveview, Navrekar says, "Whether (increased costs) are actually passed on tothe buyer will depend on the level of demand. Increasing home loan rates willsurely impact the demand adversely, which may not be offset by the increaseddisposal income accruing to individuals as a result of the raised tax slab. Theequation might have been different had there been incentives that would drivedemand stimulation, such as an increase in the existing Rs 1.50 lakh deductionfor interest paid on housing loans ." He adds that overall, given thealready high property prices and slowing demand for property, it is possiblethat some developers may choose not to pass on the whole burden of the servicetax on to consumers. Across the board Kaura says the effect will be felt acrossIndia -on the projects under construction and those on sale. However, Navrekarsays, "The affect may be relative to the category of homebuyers. While the affordable housing segment and developments in Tier-IIand Tier-III cities are somewhat susceptible to the cost increase, given thatthe net impact is only 3.5 per cent." Pratik Jain, executive director, KPMG,says that unless exemption clauses of the service tax are clarified, impactwill be widespread. More clarity is also required on whether houses below theRs 20 lakh to Rs 30 lakh price range will be exempt. Very little choice Kaurasays buyers don't have much choice. "The cheaper alternatives will becomemore expensive. Since already-built options are usually more expensive than yetto-be-completed projects, the relative rise in prices would not be significantfor underconstruction projects . If buyers are looking at cheaperalternatives, they are still likely to go in for under-constructiondevelopments." Narvekar says, "Typically,properties are costlier when purchased after completion of construction. Thus,the buyer is likely to choose between comparatively lower prices ofunder-construction properties and constructed property with a higher price tag, though without theservice-tax component." What is clear is that the addedcosts are not likely to dissuade investors or speculators, nor will it impactdevelopers significantly. The buyers are likely to be hit the hardest. Courtesy: HT Estates 13 March 2010 For more information regarding apartment in gurgaon,bedroom apartments, buy property in india, commercial complex in india,commercial real estate, commercial space in gurgaon, dealers, flats for sale,indian real estate investment, investment options in real estate, luxuriousflats, malls, office space, office space in gurgaon, online real estate,penthouses gurgaon, plots, property consultants, property in gurgaon, propertyindia, property investment, real estate company, real estate developer, realestate gurgaon, real estate in india, real estate investment strategies, realestate market, real estate news, real estate portals, realtors, realty,residence, residential real estate, sell property, shop, villas, ResidentialApartment   Visit    www.zameen-zaidad.com             www.propertycafeteria.com  

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