A recent clarification from the Central Board of Excise and Customs (CBEC) has come as a relief for home buyers in the South as they will now be exempted from service tax. Buyers of residential units were subject to a service tax of 12% on the construction since June 1, 2005.

Builders in Mumbai and Delhi have not collected service tax but in most urban centers, especially in Tamil Nadu, Karnataka, and Kerala, the builders have factored in the service tax along with the apartment costs.

Confusion over the issue of whether service tax covered a deal between the buyers and the developers had been causing a lot of distress among the builders, and, in the absence of any clarification, the common man had been paying the service tax. However, CBECs clarification now clearly states that home buyers are not covered under the service tax on construction. The clarification also comes as a relief for the developers who have been looking at various options to keep costs down to rejuvenate the market.

The customers are now increasingly refusing to reimburse the service tax and the officials are insisting that the service tax is payable. This has put the developers in a difficult position. Buyers in Tamil Nadu would have to file the refund applications and the developers would have to look at ways to facilitate refunds.