Rentals of commercial properties are expected to rise by 10 per cent after the Budget on Friday proposed to bring all lease agreement of shopping complexes, malls and vacant lands under the ambit of service tax.
Besides, development of real estate complexes will also attract service tax, unless the entire consideration for the property is paid after the completion of construction.
"This step will add to the cost and it will be a huge burden on owners. Rentals of commercial property will go up by 10 per cent and it will lead to inflationary pressure," apex realty body Credai resident director GP Savlani told PTI.
Global realty consultant Jones Lang LaSalle Meghraj (JLLM ) country head Anuj Puri also said rentals of office and retail space are likely to increase by 10 per cent.
The Finance Minister said all commercial agreements or contracts between lessor and lessee for rent and lease would come under the service tax net with retrospective effect from June 2007. It will also apply to all agreements for undertaking construction of building or structures on any vacant land for commercial use.
There is, however, no clarity on whether residential properties will be considered as 'complexes' for inclusion under the ambit of service tax.
While Puri of JLLM said it should not be valid on housing properties, another global property consultant CBRE said service tax is likely to be charged on first time home buyers.