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    Correction may continue

    Expect a sideways movement in the bourses

    As expected, correction has set in after the markets attempted and failed to make a new 24-month high. Throughout the morning session, the index was up but slipped in afternoon trading. The BSE Sensex was down 121 points (down 0.68%) to 17,590 and the Nifty was down by 40 points (down 0.76%) to 5,262.

    Asian stocks rose on Tuesday after a report showed that US consumers continued to spend last month. The key benchmark indices in Hong Kong, Japan, South Korea, Taiwan, China and Singapore rose by 0.15% to 1.01%. However, Indonesia's Jakarta Composite fell 0.13%.

    European shares edged up higher on Tuesday, tracking gains in the United States and Japan. The Dow Jones Industrial Average rose 45.5 points (up 0.42%) to end at 10,896. The S&P 500 inched up 6.6 points (up 0.57%) to 1,173. The Nasdaq Composite Index gained 9.2 points (up 0.39%) to close at 2,404.

    Japan’s industrial production fell in February and the unemployment rate held at its lowest level since March 2009. Factory output fell 0.9% in February from a month earlier and the unemployment rate was at 4.9%. China said that the reason for the trade imbalance with the US should not be only traced from the yuan’s exchange rate and expressed its interest in discussing this issue.

    US data released yesterday on personal spending was encouraging as figures rose for the fifth consecutive month in February. A Fed policymaker said that the current interest rate is appropriate given the unemployment figures. Romania and Hungary cut interest rates to fresh lows on Monday as monetary policymakers looked to support growth in response to an improved assessment of market risk in central and eastern Europe. Fitch said that it is almost certain that India will continue tightening its monetary policy. Foreign institutional investors were on a buying spree yesterday as they turned out to be net purchasers of Rs1,062 crore.

    Domestic institutional buyers also were active yesterday buying stocks worth Rs270 crore. The rupee rose to a near 19-month high on continuing capital flows and weakness of the dollar. IL&FS Transportation Network (up 6.1%) was listed today. Japan's Daiichi Sankyo, which owns 64% stake in Ranbaxy Laboratories (down 1%), has reportedly firmed up plans to delist and is finalising the modalities.
    Sundaram Finance Group (up 2.9%) will quit the general insurance venture, Royal Sundaram Alliance Insurance Company. Cholamandalam DBS Finance’s (up 0.11%) board has approved raising up to Rs200 crore via unsecured non-convertible debentures on a private placement basis. DBS has announced its exit from the company by selling the stake back to Cholamandalam. SKIL Infrastructure and SKIL Shipyard Holdings have launched an offer to buy 13.31 crore shares, or 20% equity capital, of Pipavav Shipyard (up 1.5%), at Rs61.50 a share. The offer will open on 21 May 2010 and will close on 9 June 2010. Nava Bharat Projects—a venture of Nava Bharat Ventures (up 1%)—has achieved financial closure of Rs970 crore for two thermal power plants. The plants, which will be coal-fired, are of 150MW each and will be set up in Andhra Pradesh. Colgate Palmolive’s (down 0.41%) board has approved the merger of CC Healthcare Products Private Limited with itself from 1st April. Yesterday, the company, which had 75% stake in CC Healthcare, said that it had acquired the remaining 25% stake for Rs69.10 lakh. IT stocks were down after the rupee almost touched a 19-month high. We expect the market to move sideways.

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    What should a consumer pay—VAT or service tax on buying property?

    The Centre is proposing to levy service tax, while the State government is planning to charge consumers value-added tax on real estate

    The fight between the Central and State governments may lead to consumers being double-taxed for buying a piece of real estate. The Central government is trying to impose service tax—while the State government is trying to impose value-added tax (VAT).
    The software industry which is facing the same problem has been protesting against this issue (of double taxation) for over a year, but has failed to receive any clarification from the government on the same. Now the realty industry is the victim of the same lacuna in the law, and the confusion in the industry is leading the consumers to pay double tax. Earlier, Moneylife has already reported on how developers are charging consumers both service tax and VAT. (see here).

    “You cannot charge both service tax and VAT together. The government has to clearly define what is a real estate property (and whether it comes under the ambit of either VAT or service tax),” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.

    “Sale of immovable property is governed by the Indian Stamp Act which falls under State jurisdiction. The Central government can’t encroach into State territory, and vice-versa, when all powers are exclusively provided for each government,” said Prem Chhatpar, a charted accountant.

    “The government needs to define a real-estate property properly—whether it is a product or a service. Instead, it wants to impose VAT and service tax. At the end of the day, a common man has to pay this amount. He should be aware that he is being double-taxed,” said Pankaj Kapoor, founder, Liases Foras.

    However, Mr Chhatpar said that real-estate consumers are neither supposed to pay service tax nor VAT. According to him, VAT is charged only on sale of goods. When a customer books a property, it is considered as buying of ‘immovable’ property and the buyer is not signing a construction contract with the builder. He is only contracting to buy a completed property. The developer is not rendering any service to the consumers, but only carrying out his duty.

    “Unless the consumer is providing the construction material and asks the developer to construct a property, only then it can be regarded as a ‘service’. In such a case, the consumer can be charged service tax, not otherwise,” said Mr Chhatpar.

    Some industry experts also questioned why both the Central and State governments are proposing to levy VAT or service tax for one year. “Why are we talking of VAT and service tax for one year, when by the next Union Budget, goods and services tax (GST) is likely to be levied,” said Mr Vakil.  

    However, an industry expert is against the proposed GST regime. “If GST is levied, it will boost the realty market—but it will be actually a big boost for the government at the cost of the common man,” said Mr Chhatpar.

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    10 years ago

    Dear All,

    Here government is not worried about the end customer who's purchaing the properties. Here, what builders are doing, they are collecting the Service Tax as well as VAT from the end customers so as to avoid any delay on payment of Service Tax or VAT, which is quiet agreeable. But the government is not understanding and also is not bothered about checking who is collecting the service tax and VAT from the property purchaser and thus whether this money is really going to the government.
    Secondly, why should customer pay twice towards 2 different taxes for a single thing. By doing this, the flat cost is rising and thus resulting in the flat not getting sold.
    Nowadays, already property prices are again hyped. Government has no control on it. Rather it is only thinking from their end how money will be pocketted in their safe. Government should also think on controlling the reality estate prices rather than introducing various tax policies. The rates should be constant at for an year or two. So that, the buyers can plan their purchases and also there will be less troubles for builders / purchasers to sell / purchase the under construction / ready properties.
    I hope many people including the builders/developers will agree on this.

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