Jaipal Reddy for review of service tax on hsg complexes

The urban development ministry will soon seek a review of service tax on housing complexes under construction, proposed in Budget 2010-11, as it feels the levy will hurt the realty sector, which is yet to recover from the global economic recession.

"The urban development ministry feels the proposal of service tax made in the Budget needs review. I am recommending the review of the proposal by the finance ministry...," Urban Development Minister Jaipal Reddy told reporters on the sidelines of an Assocham event on realty sector here today.

"I think just now the real estate in India is not in its pink of health and we cannot afford to add pressure on that," he said, adding that recommendation would be made to the finance minister in the next few days.

The country's largest realty firm DLF Chairman K P Singh, who was also present, said "this is not the right time" to impose service tax as realty sector is not in a "correct shape".

Singh also pointed out that housing prices would go up if this Budget proposal comes into effect.

Finance Minister Pranab Mukherjee in Budget 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.

"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 proposal.

Complex is defined as consisting of more than 12 residential units.

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