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Developers from Mumbai have been issuing occupation certificates (OCs) instead of building completion certificates (BCCs). According to the new budgetary provisions, occupants who do not possess BCCs will have to pay a service tax of 10% throughout the life span of such properties
The service tax provisions in the Budget affecting the realty sector have sparked off a lot of debate in the industry. One of the obscure clauses stated in the service tax announcement is that occupants of developed properties have to possess a building completion certificate (BCC), failing which such properties would be considered as ‘properties under development’ and their occupants will have to pay a service tax of 10% throughout the life of the said property.
However, this provision can have major consequences for the Mumbai realty market. Under conditions of anonymity, a person familiar with the situation told Moneylife that around 90% of the structures in Mumbai do not posses a BCC. After the new clause in the Budget, the occupant will now have to possess a BCC.
According to industry sources, developers have been issuing occupation certificates (OCs) to buyers instead of BCCs. Developers find it easy to procure the OC rather than spend a huge amount to get a BCC from the authorities. The OC is issued when developers receive civic permission for water connections and sewage facilities. Many developers do not even try to procure BCCs, revealed other source.
In his Budget proposals, the finance minister had said: “In the ‘Construction of complex service’, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly.”
This means a property would be deemed ‘under construction’ and would be a taxable service if there is no BCC issued by the concerned regulatory authority, which in most cases is the resident municipal authority (in Mumbai, this body is the Brihanmumbai Municipal Corp or BMC).
However, this new service tax clause may encourage more cash transactions in the realty industry, because developers will have to shell out greater amounts to procure a BCC.
According to a developer, there is no specific definition on what constitutes ‘completion’ of a property. Every state has a different definition of ‘completion’.
"Many builders find it difficult to comply with certain conditions (laid down by the designated civic authority), so they do not bother about the BCC once they procure the OC. The authorities issue the OC only when the property is fit for occupancy. Later nobody really bothers about the BCC," added other developer.
To top it all, a few developers are getting away without even procuring OCs, says a source from a leading bank.