In a relief to realty sector and home buyers, Finance Miniser Pranab Mukherjee on Thusday announced tax concessions to the construction sector, which was brought under the ambit of service tax in this year’s Budget.

With today’s announcement, service tax would be levied on 25 per cent of the gross sale value of property compared to 33 per cent proposed in the budget in February this year. “I propose to provide the tax relief to this (construction) sector by enhancing their rate of abatement from 67 per cent to 75 per cent of the gross value, where such value includes the value of the land constructed upon,” Mukherjee said replying to the debate on Finance Bill in Lok Sabha.

This means property prices would rise by a lower than expected 2.5 per cent. To give thrust to the low cost housing schemes for the urban poor, he announced exemption of service tax on constructions under Jawaharlal Nehru Urban renewal Mission (JNNURM) and Rajiv Awas Yojna.

Real estate developers as well as Urban Development Minister S Jaipal Reddy had asked the Finance Minister to review the proposal, saying that the proposal would hit the sector which is recovering from a huge slowdown in demand. In Budget 2010-11, the Finance Minister brought development of real estate complexes under the ambit of service tax. “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,” says the Budget proposal. Post-budget, Finance ministry officials had clarified that service tax would be imposed on 33 per cent of selling price as there is an abatement of 67 per cent.

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