The Confederation of Real Estate Developers Association of India (Credai) plans to move the Supreme Court against Union Finance minister P Chidambarams Budget proposal of imposing a 12.36% service tax on renting of immovable property for use in commerce or business.

Raj Menda, secretary of Credai, the national body of 16 regional real estate associations, said that the finance ministers service tax proposal is not constitutional as land tax is a state subject.

Since the building is on the land, any kind of tax on the building can only be imposed by the state government. The central government can't slap any tax, said Menda.

Menda said that the association will soon submit its demand to revoke service tax to the finance minister. If  the finance minister does not agree with us and Parliament passes the Budget with service tax on lease rentals in place, we will move the Supreme Court. Menda who is also the managing director of RMZ Corp, the Bangalore-based real estate company, said that as a result of the new service tax, some of his IT customers will have to pay Rs 60 lakh more per month on 2 lakh sq ft of rented place.

Mendas RMZ Corp along with Ambuja Realty is setting up 2 million sq ft of IT space spread across 20 acres of land at New Town, Rajarhat, East of the city of Kolkata.

Menda and Harshvardhan Neotia, chairman of Ambuja Realty Development, feel the new service tax is a burden on the IT promoters. The service tax increases their overhead cost and that is a concern, said Menda.

Menda said Credai has already spoken to come senior advocates on the possibility of moving court on the issue.

But Narayan Jain, a senior tax consultant, feels that real estate entrepreneurs are misinterpreting the proposed amendment. 

The service tax is not going to be imposed on the amount of rent, only on the brokerage or commission payable in respect of services rendered by the real estate agents or the brokers, said Jain.