A fundamental question arising today is whether the Real Estate sector is passing through a turmoil and deep rooted recession. Obviously with an unsatisfactory Service Tax system and administration, those in the Real Estate Sector feel more frustrated. Thus, picking up the matter, Servicetaxonline relayed a review with comments from some leading authorities in this Sector.
“Different interpretation of tax rates in every departments and contradiction in various judgments is one of the leading questions in front of Indirect Tax regime in India” , Mr. Amit Israni, Head- Corporate Finance, Pacifica companies (Real Estate Developers)
Of all spheres of industries where there is an enormous gap between stated goals and actual achievements, Real Estate has a boom in Indian market since the last couple of years. There has been a robust growth after new Foreign Policy like FDI, which has adopted the contribution of massive funds by foreign investors. In this duration of time, the sector has shown multi-crores implements of Property Projects either Commercial or Residential Project and effectively acquired new technologies, skilled manpower & professionals, and quality work. Yet India has a long path to travel when seen in light of tax systems as compared to other developed countries concerning multi procedures of indirect taxation.
Different interpretation of tax rates in every department and contradiction in various judgment is one of the leading questions in front of Indirect Tax regime in India. Due to the number of interpretation changes with changing departmental officers who follow their own provisions with respect to Service Tax, unnecessary compliances increase. In simple words, we find multi structures of taxes in Real Estate Sector, which strongly affects the cost for end users. There is no common specification of norms likewise notification, laws, for involvement of designers, developers or implementers as well as agents who are engaged in maintenance of property. Developed countries like the US and others have simplified procedures e.g. GST on the subject of Indirect Taxation. It is being said that Goods Service Tax (GST) would be sufficient to solve many problems in India which is likely to come about in 2011. Now it is requisite for the Government to strongly vigil the matter and show quick results.
“Builders do not see any clear cut notification for constructing Commercial complex, only Residential Complex shows the clear notification”, Mr. Darshit S Shah, CA, VKJD & Associates (also working for SAFAL)
Real estate starts with acquisition of land. If land is non agricultural then it is first converted into agricultural land and is given a title. In this process there is no role of Indirect Taxes; it begins once Contractors coordinate with Builders. One major impediment is that around fifty percent labor contractors are not aware of registration procedures and other indirect levies. It is very cumbersome for a person of non taxation background to understand this. If a dealer goes for lump sum option he is restricted to deal outside of his state limits or in other words, concessional rate of 0.6% binds dealer’s transactions within his state area. Thus, this limitation should be relaxed by the Government.
There should be uniform rate of taxes because here in Indian Real Estate a number of taxes exist including both direct and indirect taxes, for example labor laws, PF, Service tax, Customs, Excise, VAT, Works Contract Tax etc., which always confuse non technical people.
Another unjustified concept by the Government is regarding the construction of commercial complexes. Builders do not see any clear cut notification for constructing Commercial complex, only Residential Complex shows a clear notification. 10 Lakh limits should also be increased at least by 50 Lakh especially for labor contractors. VAT should be scrapped.
“Because of numerous levies, people of Construciton Industry can not understand whether this Industry is Service Industry, Manufacturing Unit or Business man (Corporate)”, Mr. Suresh Patel, Vice President, The Gujarat Institute of Housing & Estate Developers.
Real estate is considered neither a Manufacturing Unit nor a Service Sector. There are a number of taxes in the Construction Industry. If anyone purchases land of more than Rs. 10 Lakh, he is routinely covered under the network of Service Tax. If Owner passes the contract of developing his land to any developer, it is again covered under the network of Service Tax. About Construction of Unit, Levies are applicable in broadly two ways; one is from Material Part and another is from Labor Part. Material Part attracts Excise Duty in time of manufacturing, Customs Duty in time of Import, Service Tax during Transportation of materials including Central Sales Tax (CST), Value Added Tax (VAT). Labor Part attracts Labor Service Cess, Infrastructure Part of Labor, and Income Tax Pay by the Labor Contract. Also both Material and Labor Part attracts Works Contract Tax.
It can be represented as:
Other part of Levies (Direct & Indirect) are applicable during Unit of developing the property, which attracts liabilities like paying to Local authority e.g. Urban Authority Charges, Betterment Charges, Sewer Charges, many developing fees like Balcony Coverage, Parking Provisions, and many more. Once the unit is ready it attracts the Transfer of Property Tax. Without giving any CENVAT or MODVAT, State Government charges once again on both Land and Construction. Further it attracts stamp Duty and Registration Charges.
The State and Central Government is imposing a number of levies which ultimately converts into non affordability of housing to different classes of people. Because of numerous levies, people of the Construction Industry can not understand whether this Industry is Service Industry, Manufacturing Unit or Business man (Corporate). In this regard there was a long dispute with the misunderstanding of Government, but after several debates, presentions by Developer Institutes, CAs, and professionals from the industy there is only a slight relief. Adding to the point, the Government should also reduce the rate of Service Tax. It would be fair enough if the rate is of three to four percent from the existing ten percent of Service Tax because we have already been paying other avatars of Taxes.
With a concern of analysing the industry regarding Tax regime, although Government is just in focus of their soft targets they are working hard since last two years. We wish for scientific approach like Schedule of Rates (SLR) or say Jantri, which may be reintroduced by the Government soon.
With paying attention to issue of Real Estate People, Indirect Taxation Advisor Mr. Monish Bhalla explained it in his way. Mr. Monish Bhalla is CMD with Easy Tax O Legal Service India Pvt Ltd and Easy Service Tax Online Dot Com Pvt Ltd. He opined “The complexity and overlapping Tax Structure has been in area of concern for those in the business of Taxation. The Government has time and again tried to resolve the issues but the problem never seems to end as one leads to the other. In the past the Board had issue clarification vied various circulars, however the intelligible nature of the said circulars . 332/35/2006 – dated 1.8.2006 and 96/7/2007-ST dated 23.8.2007 followed by circular no. 98/1/2008-S.T., dated 4.1.2008 still was unable to resolve the long standing issue of methedology of Service Tax on Construction Industry. Issues like Taxation on the development fees, estate charges, plantation and maintenance of plants, trees, lawns, maintenance of garden and common facilities and many other such issues, where opinions differs from person to person needs to be addressed to at the Board level and earlier the better”.
Tags: SERVICE TAX
For that reason of New Government initiatives to boost sector of Real Estate India include granting a tax holiday on profits from initiates in the financial year.
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