From June 1, the services tax payable will rise to 14 per cent from 12.36 per cent (including cess). And since construction work is a service and tax is payable for this by home buyers on under construction properties, the pendulum is going to swing towards ready-to-move-in/ near-ready homes. In other words, the premium on ready homes is set to readjust to a higher level to factor in the additional cost of buying an under construction property.
After accounting for the 75 per cent abatement available, the effective increase in service tax will be 0.41 per cent of the value of the property. With several homes costing crores today, the impact may not be so insignificant — the effective tax increase will translate to Rs. 41,000 per crore. This needs to be seen more practically from the standpoint of a typical home buyer who borrows a large chunk of the property value on an EMI repayment basis. So if the EMI for a Rs.1 crore property is about one lakh per month, an additional burden of Rs.41,000 may not be a small amount.
However, realtors tend to make a big deal out of such tariff revisions. The real reason for cost escalation and hardship to home buyers is more-often-than-not, a lack of clearances and delays in construction by builders. Seen in this context, despite the hue and cry about the increase in service tax, the core issue to be addressed are the unhealthy and unfriendly practices of developers. The proposed laws to regulate the sector can go some distance in addressing this, especially with a move to bring ongoing projects under its ambit. How the process moves ahead and its effective implementation will determine the extent of relief for home buyers. In light of the above, the best course to take for a buyer is to stick to their home buying decision and not get influenced by the service tax hullabaloo. They should rather keep their eyes on the progress of the realty sector regulation bill.
Former Editor, Outlook Business and Executive Editor, NDTV Profit, the writer is a personal finance expert. Mail him at propertyplus@thehindu.co.in
