The finance ministry on Thursday ruled out rolling back of service tax on real estate developers at the time of construction, a move which the industry says will jack up housing and commercial property prices.
"Construction is a service. As a service, there is no reason why it should not be taxed," revenue secretary Sunil Mitra said at a Confederation of Indian Industry seminar in New Delhi on Thursday, adding however, it is only 3 or 3.5 per cent that gets added up for the buyer.
Central Board of Excise and Customs chairman V Sridhar has also said the realty sector would not attract 10 per cent service tax in effect.
"The tax is not at full 10 per cent ad valorem. We've a scheme of abatement for 67 per cent. The ratio, basically, was arrived at to represent the cost of inputs. So, in reality, it would pay only 33.3 per cent of the value," Sridhar said.
In the Budget speech, Finance Minister Pranab Mukherjee had said development of real estate complexes will attract service tax, unless the entire consideration for the property is paid after completion of construction.
"In the construction of complex services, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service," say the Budget papers.
Complex is defined as consisting of more than 12 residential units. Industry players, however, said the tax would make housing costlier for buyers.
