Service Tax Retention to Fuel Real Estate Price Hike
The Finance Ministry's decision to retain the 2.5% service tax on under-construction properties is anticipated to escalate real estate prices across India. This decision reverses a proposal by the Urban Development Ministry to withdraw the tax in the FY10-11 budget. Initially, the budget had proposed this tax on all under-construction projects, and it is widely understood that this additional cost will ultimately be passed on to the consumers, rather than being absorbed by real estate developers.
Disappointment for Urban Development Ministry
The Finance Ministry's refusal to withdraw the tax has come as a significant setback for the Urban Development Ministry. Urban Development Minister Mr. S Jaipal Reddy had advocated for the removal of the tax in discussions with Finance Minister Mr. Pranab Mukherjee in April of this year, but those efforts appear to have been unsuccessful.
Impact on Indian Homebuyers
Indian middle-class homebuyers are expected to bear the brunt of this decision. They are already grappling with inflationary pressures across various sectors and aspire to own their homes; this tax will only add to their financial strain. The added cost due to the retained service tax will affect the affordability of under construction properties for these buyers.
"The ultimate sufferers will be the Indian middle class who already has to bear the burden of inflation in almost all other spheres but also dreams of owing a home of their own!"