The urban development ministry is set to initiate a review of the proposal concerning the service tax duty on housing projects that are still under construction, a move that was initially suggested in the budget for the year 2010 with an implementation date of April 1, 2010.
Photo by nancyarora2020 The urban development minister, Mr. S Jaipal Reddy, articulated his stance at the recently convened national conference on Indian Real Estate, stating, “The urban development ministry feels the proposal of service tax needs review. I am recommending the review of the proposal. I think the real estate sector in India is not in the pink of health right now and we cannot afford to add pressure on that.” He further mentioned that recommendations would be directed to the finance minister in the upcoming days.
Held by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) on March 26, the conference highlighted the challenges facing the realty sector, which has been significantly impacted since the onset of the global financial crisis in September 2008. Recently, there has been a slight uptick in demand, which real estate players hope will continue. They have been urging the government to repeal the service tax currently levied on housing at a rate of 3.3%, fearing that it would hinder buyer enthusiasm.
K P Singh, Chairman of DLF Group, emphasized, “This is not the right time for service tax implementation as the government’s objective is to encourage people to own houses. We have to wait for another month or so to see if the finance ministry listens to our request.”
Mr. Reddy also remarked on the government's aspirations for “vertical growth” in urban spaces, as opposed to urban sprawl, which is exacerbated by limited land resources. He advocated for a more adaptable floor-area ratio (FAR) regime, stating that increased FAR limits would facilitate the construction of taller buildings.
Quoting a UN Habitat report, he noted that by 2050, one billion people in India would inhabit urban areas, asserting, “Urbanization is not only inevitable but also desirable.” However, he lamented that urban development has historically received “benign neglect” as it often falls under the jurisdiction of state governments.
Another significant concern for real estate firms revolves around the extensive number of clearances required prior to the commencement of any construction project. Mr. Navin M Raheja, MD of Raheja Developers Ltd, pointed out, “Today, there are more than 50 agencies from where we have to take our clearances. We have to ensure that the best way forward is to have a single-window system as it would not only save time but also ensure transparency.”
Supporting this view, Anil K. Agarwal, the Past President of Assocham, asserted, “It is very important to have a single window clearance system in real estate sector.”
The industry now awaits the finance minister's position on these pressing matters.