Service Tax Waiver On Affordable Housing May Be The Best Feature of Jaitley's Budget 2016

In his Budget 2016 speech on February 29, as Finance Minister Arun Jaitley announced several measures promising to revive the country's slump-hit real estate market, the listeners were all applause. However, the announcement that caught everyone's attention was the one where he went all out to push affordable housing in India. The announcement was about service tax on under construction property in Budget 2016.

Also Read: How to Calculate VAT and Service Tax on Under-Construction Property?

In Budget 2016 service tax on property was waived to push affordable housing. “It is proposed to exempt service tax on construction of affordable houses up to 60 square metres under any scheme of the central or state government, including PPP (public-private partnership) schemes,” Jaitley read from his Budget document.

This was a move aimed at meeting the 'Housing for All by 2022' target, many observed. The keener ones knew how this move would encourage cash-strapped developers in the country to increase the construction activity. They also knew this would bring the overall cost of project down and prompt buyers, who had been sitting on the fence for a while, to go ahead and invest in the property market.

The announcement was seen as a special one, particularly as it came after Jaitley declaring that the state of economic affairs in the country was not very good. He had taken to poetry to send across the message that his government had inherited heavy financial burdens from its predecessor. And, in his same vein, he had also declared that his government was going to take on the challenges to put things back on the right track.

It should be noted that service tax is an indirect tax that a service provider has to pay to the central government for providing services. But the burden of paying this tax is finally shifted to end users. In India, service tax is charged at 15 per cent at present (this includes education cess, Swachh Bharat cess and Krishi Kalyan cess). Service tax increases the construction cost, making housing more expensive for the common man. For this tax is levied only on services provided by developers, the worth of the land on which a project is built is not included when the tax calculation is done.

In a recent judgment, the Delhi High Court also ruled that service tax could not be levied on under-construction properties. The ruling brought cheers to developers and home buyers in the national capital region, who would find it easier to invest in ongoing projects. Several projects in the NCR market are stuck in various stages of construction because developers do not have enough liquidity to complete them.

A break from paying service tax on affordable housing units will be a welcome change for everyone.

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