Service Tax Makes Commercial Property Dearer

March 1, 2007	(2 votes, average: 1.5 out of 5)  Loading ...
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The decision of Union Finance Minister to levy a 12.5% tax on commercial lease rentals has created a tense situation for the India real estate industry. This may add to the property prices further thereby crippling already suffering consumers, say industry watchers.

The service tax is certainly going to pass to property buyers because the landlord will not absorb it. And the tax scenario may put off the potential real estate shoppers.

However, the property market is still waiting for the final print top come. But it seems like there will be a negative impact on the real estate industry. Every retailer takes the rentals as overhead expenses and the extent largely depends on the value of tax, said Shoppers’ Stop CEO Govind Shrikhande.

Increasing the service tax to rental values earned from immovable property could be counter productive. There are large possibilities of the tenants refusing to pay the service tax at 12.5% of the rent and the owners may require absorbing the tax.

Availability of certain exemptions under the Income Tax Act has lowered the rate of taxation. The proposed tax scheme may further negate the tax benefits.

The commercial premises that had been leased out or leave or license will also be subjected to the levy with effect from the date to be specified hereafter.

Commercial spaces including shopping arcades and office have got expensive by another 15-20% and the homes by 20%. The tax, however, does not include residential properties, vacant plots for agriculture, land for sports, entertainment and parking purposes and immovable property for educational or religious purposes.

No attention has been paid on urban housing thereby keeping them aside from the benefits. Service tax will also be imposed on societies undertaking repair work beyond Rs. 3,000.

Instead of announcing any concessions for the real estate sector, the finance minister has made the conditions worst by levying a further 12.5% service tax on it, a view shared by all property developers in India.

News Published Under:   Real Estate India |