CREDAI asks govt to remove service tax; submits memorandum

Real estate industry body Confederation of Real Estate Developers' Associations of India (CREDAI) today said it has submitted a memorandum to the Finance Ministry, asking the government to remove service tax on housing complexes under construction.

"We have put forth our concerns and recommendations and also discussed the probable impact of the provisions with the Ministry. We are hopeful that the government will understand the implications and not burden the consumer," CREDAI Chairman Kumar Gera said in a statement.

CREDAI prepared a list of recommendations in consultations with its knowledge partner KPMG. The suggestions were submitted to Finance Ministry Member (Budget) Y G Parande.

Gera said imposition of service tax on real estate development could lead to an overall negative sentiment, although the amount collected through the provision may be small, and may result in a net loss of revenue.

Finance Minister Pranab Mukherjee in the Budget for 2010-11 brought development of real estate complexes under the ambit of service tax, unless the entire consideration for the property is paid after completion of construction.

Finance Ministry officials later clarified that service tax would be imposed on 33 per cent of total selling price, which, the real estate players said, effectively means about 3.5 per cent cost escalation for the buyers.

"The CREDAI delegation explained that the proposal of the government to levy service tax on construction of complex was an impractical proposal as this would lead to government giving preference to the secondary market of completed projects," the statement said.

It also questioned bringing in the service tax at a time when Goods & Services Tax (GST) is expected to be introduced in another 10-12 months.

Last month CREDAI had said it would consider taking the government to the court if its demand for excluding land cost from the proposed service tax on housing complexes under construction is not met.

"There is an option of approaching the court and CREDAI will decide to go to court, if at least land cost is not excluded from the ambit of service tax... Land is not at all a service," CREDAI NCR President Pradeep Jain had said.

Realty developers pay different types of taxes under various heads, including stamp duty on land cost, and addition of one more tax will only put extra burden on consumers.