Big tax relief for buyers of under construction flats: India Inc

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The Industry Experts have welcomed the decision of Delhi High Court on no service tax can be levied in respect of the agreements entered into between buyers and builders for flats in an under-construction building in a housing project.

The Delhi High Court has held that service tax cannot be charged on property units in a complex, which include builder flats, group housing flats and builder floors.

However, the service tax will still be applicable on Preferential Location Charges (PLC) levied by a builder.

Service tax can have a severe impact on housing and construction as the sector is already facing several problems on account of high interest rate, lacklustre demand and increased project costs. Service tax will impact the growth prospects as housing is considered as an engine of economic growth and has the potential to give a big push to the economy through its strong backward and forward linkages. The sector plays a significant role in contributing to capital formation, generation of employment, and income opportunities.

"It is very encouraging that Delhi High Court has held that no service tax can be levied on home buyers for under construction apartments. It is a great respite to the ailing housing and construction sector," said Dr. Mahesh Gupta, President, PHD Chamber of Commerce and Industry.

Sameer Rastogi Managing Partner of Delhi based corporate law firm India Juris said “In my view the Judgment comes as a big relief for buyers and the buyer’s community who have entered into agreements on or before 1st July 2012 and have paid service tax will get their service tax returned with interest of 6% p.a. and those who have entered into agreements after 1st July 2012 do not benefit from the order as service tax was charged at that time on such construction projects.

"Also the judgment is likely to be challenged in the Supreme Court. There are still many aspects that needs to be looked upon without which the order will not be of any use for the buyers like in case the builders cannot charge the service tax from the buyers though they themselves will still be liable to pay the service tax to government which in turn will lead to escalation of Project cost and the onus to pay the service tax component will ultimately land in the hands of the buyers," he added.

On the other hand Parveen Jain, President, National Real Estate Development Council (NAREDCO) & CMD Tulip Infratech Said “In the context whether service tax is applicable for the home buyers or not and in which situations, the government needs to resolve the issue so that there is no confusion, otherwise it is giving rise to disputes and tension in relationships between the developers and the homebuyers which should not happen."