Indian Realty Developers may come under Service Tax Net

Real estate developers who till now had been out of the service tax
net may soon have to loosen their purse strings, if a recent verdict
by the Authority for Advance Rulings in Delhi is enforced by the central
excise and customs department. The ruling has sent the realty market
into tizzy as any additional cost would mean passing it on to the customers.

A new decision by the Authority for Advance Rulings on Monday has ruled
that a real estate developer, who first charges a booking amount from
his customers, constructs on his own and then sells residential units
on the land owned by him is now liable to service tax.

The decision came by in a case of Ahmedabad based Harekrishna developers
on Monday.

"The new ruling asks the developer to pay service tax on his gross
activity, which was not there earlier. It will open a Pandora’s box
as construction costs are going to rocket and may even bring a slump
to the realty market," believes tax consultant Monish Bhalla.

Real estate developer Jaxay Shah adds, "We have heard about the
ruling but we are yet to see a copy of the order."

"Till now developers had been claiming exemption on the basis
that they do not outsource the job to anyone and hence they were exempted
from service tax. Developers used to buy land first after charging a
booking amount from individual customers and erect a scheme. But now
these very developers would have to go back to the customers for an
extra sum if the new service ruling gets enforced," says Delhi
based Harekrishna developer’s lawyer RS Sharma.

Photo: Apartment BUildings Under Construction – Street 501 – Rajarhat by Biswarup Ganguly, licensed under CC BY 3.0, via Wikimedia Commons.