The entity has argued that a tax on transfer of land should be a State subject
The Institute of Chartered Accountants of India (ICAI) has called for excluding land value from the proposed service tax on the realty sector, saying land is a State subject, reports PTI.
“When a prospective buyer makes an advance payment to the builder against booking of a specified unit in a building, that part also includes a price towards the land on which the building is being constructed and treating the entire amount being paid by the prospective buyer to the builder would amount to imposing a tax on transfer of land which is a State subject,” ICAI said.
The Budget proposes to bring the realty sector, including new residential properties under the service tax net.
In its post-Budget recommendation on indirect tax, the ICAI suggested that the value of land based on municipal valuation be excluded from the payments made by the buyer as the “intention cannot be to tax the value of the land or the appreciation in the value of the land.”
Finance minister Pranab Mukherjee has brought construction of real-estate complexes under the ambit of service tax unless the entire consideration for the property is paid after completion of construction.
“In the construction of complex services, 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,” said the Budget proposal.
A complex has been defined as buildings consisting of more than 12 residential units.
Finance ministry officials later clarified that service tax of 10.3% would be imposed on 33% of the selling price of the property, which effectively means about 3.5% of the total cost of the property.
Last week, CREDAI—an apex body for realtors—said that it will consider taking the government to court if its demand for excluding land cost from the proposed service tax on real estate complexes under construction is not met.
Not only developers, even the urban development ministry said it would soon approach the finance ministry seeking a review of the proposed service tax on the real estate sector as it feels the levy will hurt the sector, which is yet to recover from the global economic recession.