Home buyers and property developers need not worry about being levied a service tax if they cannot procure a completion certificate from the local authority. The government could allow some independent authority to certify that the property is complete.
“We are examining the issue and will see if a similar certificate from an outside agency can suffice,” a finance ministry official told . Local authorities in some states do not issue completion certificates while others take many years to issue one. The budget for 2010-11 has proposed to expand the scope of construction service to impose service tax on houses that are still being built.
The service tax will be levied only on 33% of the base price of a flat sold at construction stage. The effective service tax rate will work out to 3.3%, or 10% of 33%. Charges such as development fee, parking fee and premium location usually paid at the time of completion of construction will also be included in the base price.
The new rule will come into effect when Parliament approves the budget. Service tax will be levied only if payment is made before the completion of construction. Sale of fully completed houses will be exempt from the tax if a completion certificate from a local authority is provided.
The finance ministry may admit a certificate from an architect or builders association as a sufficient proof of completion.
Property developers had a mixed response to the proposal. Rajeev Talwar, managing director of DLF, the country’s largest developer, felt the flexibility could be abused. However, an executive of Delhi-based developer Ansal API appreciated the government’s decision. “If the government takes the decision to outsource the whole process to an accredited agency, it will take the pressure off the realty firms.”
Non-availability of completion certificate can increase the cost of a property as the 3.3% service tax would be significant, taking the tax element to nearly 10% after including the stamp duty.