Builders are all set to legally challenge the imposition of the service tax levied by the Centre on flats under construction. The Maharashtra Chamber of Housing Industry (MCHI), which has leading developers as its members, is considering filing a writ petition in the court against the service tax, which has been imposed since July 1.
The service tax will be charged on only those residential projects, which are still under construction or where a completed building has not received its occupation certificate. More than 80% apartments are booked when they are still under construction.
MCHI president Sunil Mantri said under the Constitution, the Centre and the state had separate domains in respect to its rights to impose taxes. “The state has the exclusive power to levy taxes on land and buildings in terms of Entry 49 of List ii to the Seventh Schedule of the Constitution. By amending the provision to levy service tax on transaction of sale of immovable property seems to be unconstitutional,” he said.
According to him, the sale of an unit in the complex as per the settled law of transfer of property is not a service and, accordingly, the sale by the builder should not be treated as a service. “This would be a tax on transfer of immovable property only,” he said.
Developers have complained that such a tax will increase the cost of the flat and the buyer will have to bear the burden. While National Housing and Habitat Policy 2007 envisages affordable housing for all, the proposal to levy service tax irrespective of any kind of house (even EWS or MIG) would be against government policy, developers said.
Already burdened by galloping property prices, flat buyers now have to pay 2.5% more as service tax on the total value of their flat. For example, if the value of a flat is shown Rs 1 crore in the agreement, the buyer will now have to shell out an additional Rs 2.5 lakh as service tax.
Despite strong representations made to the Centre by those in the construction industry, the finance ministry did not budge. As reported by TOI in its May 25 edition, many builders had started collecting this tax even before it was officially implemented by the Centre. Developers had even informed buyers that the possession of their apartments would be held up in case they failed to cough up the amount.
The service tax will be charged on only those residential projects, which are still under construction or where a completed building has not received its occupation certificate. More than 80% of apartments are booked when they are still under construction.
The Confederation of Real Estate Developers Associations of India (Credai) has also opposed the service tax imposition, saying it would make buying houses more difficult than at present. Credai has stated that such a move will lead to double taxation.