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Dismantle tax on house construction: Urban Housing Ministry
February, 19th 2008
The Urban Housing Ministry has proposed that the 12.5% service tax on construction of residential units be scrapped. This would bring down the cost of owning a house by 3-4%. The ministry is of the view that the tax was negating all government initiatives aimed at keeping property prices in check.

Budget 2005 had brought construction of residential complexes having more than 12 residential houses or apartments within the service tax net. This tax covers independent satellite townships that have more than 12 houses spread horizontally, as well as apartment complexes of more than 12 flats. Service tax is not charged on the entire amount charged for the residential unit. Instead, the tax is levied on value addition by the developer based on the cost of land and construction materials.

It goes without saying that developers pass on any increase in input cost to the consumer, a Nirman Bhawan official said.

According to some industry sources, small builders are worst affected because of service tax. Most residential complexes in the city have more than 12 flats, even small builders take up complexes of about 20 flats or so. If they try to push up costs, it will definitely cut into their sales.

This tax was imposed by the government in the 2005-06 Budget. Interestingly, it was the year in which not only the existing private builders like DLF, Unitech, Rahejas and Hiranandanis had announced ambitious housing projects in various parts of the country, but also many new developers such as Omaxe, Parsvnath and Sobha Developers had come in fray. Understandably, the tax was imposed considering the increased business activity in the area of housing construction, the official said.

Housing ministrys budget proposal seems to be in tune with the UPA governments increased emphasis on housing. As per Planning Commission estimates, the country will be short of 22 million urban dwelling units by 2010. With general elections just about an year away, this budget is expected to be populist and efforts to bring down housing prices is obviously a key priority.
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