Service tax to push up prices of flats

Reality check

• From June 16, 10.2% service tax on contruction of residential complexes.
  
• It means, you have to pay Rs. 60,000 more for a Rs. 20 – Lakh flat.
  
• Additional 10.2% tax on club membership.

It’s time to pay service tax on house construction. From June 16, the 10.2% service tax proposed in this year’s budget will come into force on house construction and eight other new services.

The rules notified on Tuesday imply that there will be a tax of Rs. 60,000 on a flat costing Rs.20 lakh in a housing complex.

It could be a double whammy for housing complexes. This is because there is also a 10.2% service tax on membership of club or associations. Residents’ Welfare Associations (RWAs) and co-operative Groups Housing Societies (CGHS) will have to pay the tax.

Applying layman logic, the tax on house construction services will jack up the cost of the Rs 20- lakh flat to Rs 20.6 lakh. Not necessarily, maintained revenue officials on Tuesday, pointing out that the final cost of a house depends on a host of factors, including the supply and demand and competition in the property market.

The rules giving effect to the service tax proposals of the budget allow 67% abatement in calculating the tax on construction of houses on the line of commercial construction services, which were already being taxed.

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