IT TOOK just five days for the mood of the builders, rejoicing at the new FDI norms, to change when Union Budget on Monday proposed a service tax on certain category of new residential construction and a tax on cash withdrawals from bank of over Rs.10,000. While both the measures will hit the stakeholders, big and small, in the real estate sector, the impact of the service tax on purchase of property in complexes having over 12 apartments would be cascading for the customers. Simply put, someone purchasing an apartment in such complexes at say Rs.10 lakh would be liable to pay Rs.1 lakh as service tax and two per cent on it as education cess. "It will affect the affordability level of the people as 10.2 per cent more means a significant increase in their expenditure," says N. Sairam of GRN Constructions.
Cautioning about an agitation by the building community, which would be affected by possible drop in demand in the initial months, Navaratan Lunawath of Arihant Foundations and Housing points out that service tax hitherto was restricted to commercial property sale.
The tax on bank withdrawals, both the builders say, will equally affect the construction industry, as the payment to labourers, daily-wage earners and many in allied sectors is through cash. "Cash is something that the daily-wage earners look forward to at the end of a day's work. How can we issue cheques and drafts to them?" asks Mr. Lunawath.
The tax on the withdrawal would be an additional burden for the builders, says Sairam, pointing out that cash transactions up to Rs.5 lakh daily were not uncommon in the business.
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