Home buyers in South Indian states could be deprived of benefit of 75% abatement granted by the government with regard to service tax on construction activity, introduced in the last Budget. This is because unlike in north Indian states, the cost of house does not include the value of land in southern states.
The relevant notification issued by the government says: ?This exemption (the 75% abatement) shall not apply in cases where the cost of land has been separately recovered from the buyer by the builder or his representative.?
In South Indian states like Tamil Nadu, Andhra Pradesh and Kerala, the value of land is not included in the value of the house but taken in advance at the booking time itself.
So, this means that the home buyers in southern states would shell out service tax at a rate of 3.3% on the cost of the house with an abatement of 67% that existed earlier.
Home buyers in other states, where the value of land is included in the value of the house, would pay service tax at a lower rate of 2.5%.
The government had introduced construction activity in the service tax ambit in the Budget for 2010-11. Special services provided by a builder to the prospective buyers such as preferential location or external or internal development of complexes on extra charges were included in these services.
With the service tax rate being 10%, and an abatement to the sector at the rate of 67%, a service tax of 3.3% on the cost of the house had to be paid. The move, not going well with even the industry associations and after a series of representations from the real estate sector, the abatement was hiked to 75% but with the condition that the cost of the house will include the value of land too.
Finance ministry officials feel that the real estate sector in South could not represent themselves to get the same kind of abatement. But, the northern states managed to get a better deal as a result of their persuasive skills, they feel.
Two activities?commercial or industrial construction and construction of complex?were included in the service tax ambit in the last Budget.