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May move court over tax
March, 29th 2010

The Confederation of Real Estate Developers Associations of India (Credai) today said it would consider taking the government to court if its demand for excluding land cost from the proposed service tax on housing complexes under construction was not met.

There is an option of approaching the court and Credai will decide to go to court, if at least land cost is not excluded from the ambit of service tax... Land is not at all a service, Credai NCR President Pradeep Jain said.

Jain, who is also the chairman of realty major Parsvnath, said the industry body would convene a national meeting to discuss the option of using legal machinery if its request was not met when the Finance Bill was accepted.

Realty developers already pay different types of taxes under various heads, including stamp duty on land cost and addition of one more tax would only put extra burden on consumers, he added.

We had a meeting with the Service Tax Department and submitted our post-Budget memorandum to officials. Now, we are seeking a meeting with the finance minister or his officials for the same, he said.

Finance Minister Pranab Mukherjee, in the Budget for 2010-11, brought development of real estate complexes under the ambit of service tax, unless the entire consideration for the property was paid after completion of construction.

Finance ministry officials later clarified that the service tax would be imposed on 33 per cent of the total selling price, which, the real estate players said, effectively means about 3.5 per cent cost escalation for the buyers.

When asked if there was any possibility of revoking the taxation proposal, Central Board of Direct Taxes member Durgesh Shankar said: We cant say anything now as constant discussions take place for various proposals, but there are never closed minds.

He said all proposals were made after due deliberations and anticipating repercussions also, if any.

Last week, Urban Development Minister Jaipal Reddy had said his ministry would approach the finance ministry within a few days for a review of the proposed service tax on housing complexes under construction as it felt the levy would hurt the sector, which is yet to recover from the recession.

The urban development ministry feels the proposal of service tax made in the Budget needs review. I am recommending the review of the proposal by the finance ministry, he had said.

K P Singh, chairman of the countrys largest realty firm, DLF, had also asked not to impose service tax at this time as the sector was not in a correct shape.

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