Realty check for new service tax regime
Aug 06, 2012
Source : The Hindu
Residential Development

 

The service tax regime has been overhauled vide Budget 2012 — the 18-year-old classification-based service tax law has been replaced with ‘negative list’ based levy. This has widened the scope of services manifold. 
 
The shift to a negative list-based taxation is aimed at aligning the service tax system to the proposed Goods and Services Tax regime. It is hoped that the GST will help unify the levies of the Centre and the States into one composite system. 
 
Under the new regime, effective from July 1, apart from a handful of services specifically excluded from service tax, every activity for monetary or non-monetary consideration is taxable — the change has an impact on every sector, and real estate is no exception. 
 
The service tax legislation, which has been widening its scope of coverage of the real estate sector over the years, has used the transition to the new regime to cover the spectrum of real-estate related services with a few exclusions, and set to rest some of the levies disputed in the past. 
 
Residential apartments 
An interesting concept of “declared services” has been introduced under the new regime to settlethe question of whether a particular activity can be considered a service or not. For instance, the real estate sector disputed the levy of service tax on residential apartments sold to customers. The issue has been addressed by including the activity within declared services to the extent provided before a building completion certificate is issued. 
 
Similarly, service in relation to renting of immovable property, which was disputed in the case of Home Solutions Ltd, has been specifically included as a declared service. 
 
One major change under the new tax regime is the enhanced scope of levy in the case of residential complexes. Now, even a complex with two or more residential units will be subject to service tax, as opposed to 12 or more earlier. 
 
Renovation cost 
The concept of taxing contract service related to construction continues under the new regime. 
 
However, the composition scheme, which adopted a concessional tax rate of 4.8 per cent under the erstwhile scheme, has been replaced with a concept of abatement to levy composition tax. Accordingly, though there may not be any significant incremental tax cost for new constructions, which are eligible for 60 per cent abatement, renovation of existing buildings may be impacted with a lower abatement of 40 per cent of the contract value. 
 
While the negative list will enhance and clarify the scope of taxability under service tax — many aspects of which were hitherto mired in litigation — questions over conflicting jurisdiction between service tax, stamp duty and VAT shall remain. 
 
Furthermore, due to the shift in the basis of determination for tax levy and lack of adequate guidance under the new regime, the real estate sector could potentially face new legal issues, such as taxability of services for immovable properties outside India (when the service provider and property owner are in India), or the treatment of projects under composition scheme. 
 
In a nutshell, while adopting the new tax regime, the real estate sector is still beset with questions that it hopes will be solved over time. 
 
(Vivek Pachisia is Tax Partner, Ernst & Young) 
 

Latest Realty News

Real estate, election campaigns routing black money
Aug 06, 2012
NEW DELHI: Money generated through illegal means is laundered through various means, including real estate and election campaigns, in India, a report of the US State Department has said. "High-level corruption both generates and conceals criminal proceeds. Illicit funds are often laundered through real estate, educational programs, charities, and election campaigns. Companies use trade-based m
Cities should be made hubs of economic growth: official
Aug 06, 2012
Secretary in the Union Urban Development Department Sudhir Krishna on Friday said urbanisation could not be prevented and the solution lay in creating planned cities making them hubs of economic growth. Delivering the keynote address at the South India Real Estate Conference 2012 organised by Federation of Indian Chambers of Commerce and Industry (FICCI) here, Mr. Krishna said at a time when
Corporators up in arms against Berhampur MP
Aug 05, 2012
BERHAMPUR: Cutting across party lines, several corporators of Berhampur Municipal Corporation (BMC) on Friday engaged in a heated exchange with BJD MP from Berhampur Siddhant Mohapatra, holding him responsible for lack of development of the town. "The MP is not interested in the town's development. He has never attended any council meeting to discuss issues related to this, even though he has
Crime branch arrests 2 in Balangir land scam
Aug 05, 2012
BALANGIR: Crime branch sleuths on Friday arrested the Agra-based Taj Gas company manager and supervisor, who were allegedly involved in grabbing the land of around 100 farmers in Patnagarh subdivision in Balangir district. The two accused, Debendra Tyagi (manager) and Ajaya Sharma (supervisor), were caught by a special team from Patnagarh a day after the officials began a probe into the scam.
Risky rides for school kids
Aug 05, 2012
BHUBANESWAR: Chaotic traffic outside school gates, overloaded auto-rickshaws ferrying children and unruly guardians waiting to pick up their wards after end of classes have turned the spotlight on safety of students while commuting in the city. A problem peculiar to the city is that several schools are located on busy main roads. Given the low level of people's awareness and lack of adherence
Swinging times back at park-Cuttack
Aug 04, 2012
Cuttack, Aug. 3: Swing times are back at Sarangadhar Das Children’s Park in Jhola Sahi and children living nearby couldn’t be happier. New swings and joyrides that were lying defunct have been fixed and the smiles are back on the faces of kids. The Cuttack Municipal Corporation’s move to repair the park’s infrastructure has come after a long time. Not too long ago, damaged rides and swings
Kendrapara, an urban wasteland
Aug 04, 2012
Kendrapara, Aug. 3: Residents of this town are upset with the way the Kendrapara urban local body has been working. They allege that ever since the BJD-led urban local body assumed office, sanitation, sewerage, garbage disposal, road maintenance, public utility and infrastructure projects are in a sorry state of affairs. Almost a year has passed since the BJD came to power in the urban local b
Poor drainage spills woes onto streets-Sambalpur
Aug 04, 2012
Sambalpur, Aug. 3: Heavy downpour has once again exposed the poor drainage system with rainwater entering the houses and flowing over to the roads in several parts of the city. Rainwater has entered the houses in Housing Board Colony, Cherupara, Danipali, Gopalmal, Modipara in the city. An official source said there was 38mm rainfall in the city in the past 24 hours. “I visited ward nos. 8,
Land violators to face govt ire Axe on illegal kalyan mandaps
Aug 04, 2012
Bhubaneswar, Aug. 3: Associations and unions that have land in the heart of the city and are using them for things other than their community activities, beware. The state government has initiated steps to estimate the misuse of plots or use of land for commercial purposes in clear violation of allotment norms. At the last meeting of the city management group, the apex body that discusses the
New launches of residential properties across major cities fall by 44% in second quarter
Aug 02, 2012
BANGALORE: Residential property launches across major cities fell by nearly 44% to 17,500 units in the second quarter of 2012, due to delay in approvals, significant inventory in certain locations as well as postponement of project to coincide new launches with the festival season, says Cushman & Wakefield (C&W), a global real estate consultancy, Cushman & Wakefield (C&W). Of the 17,500 units

Latest Realty News Of State

Realty Talk's