Developers to pay service tax on redeveloped housing projects

When a real estate developer redevelops a society and delivers apartments to the original residents free of cost, is it taxable? The tax department thinks it is. In what is set to create problems for real estate developers, especially those that have undertaken redevelopment projects, the indirect tax department has issued about 400 notices in the past few months for non-payment of service tax on the delivery of redeveloped houses free of cost, people in the know said. Tax experts say that the tax-ability of redevelopment projects, especially houses delivered to original residents after redeveloping, is set to impact developers in places like Mumbai. The tax department wants to levy tax on the under-construction service to the original residents, in addition to the value of the development right,” said Abhishek A Rastogi, partner at Khaitan & Co.