Reddy seeks review of service tax on housing complexes

NEW DELHI: The urban development ministry will seek a review of the proposed service tax levy on sale of housing projects under construction. The levy has been proposed in Budget 2010-11.

“The urban development ministry feels the proposal of service tax needs review. I am recommending the review of the proposal,” Urban development minister Jaipal Reddy told reporters here on Friday.

Finance minister Pranab Mukherjee in the Budget 2010-11 brought development of real estate complexes under the ambit of service tax unless the entire payment for the property is made after completion of construction.

“I think the real estate sector in India is not in pink of health right now and we cannot afford to add pressure on that,” he said, adding that recommendation would be made to the finance minister in the next few days.

Real estate sector had been hit hard after the global meltdown began in September 2008 and has only begun to witness marginal pick up in demand.

Speaking at the national conference on Indian real estate, organised by the Assocham, he said the government favoured a “vertical growth” of cities instead of urban sprawl due to scarcity of land and a more flexible floor-area-ratio (FAR) regime. A higher FAR limit will allow more storeys to be built in the houses.

“Vertical growth would be facilitated due to scarcity of land. Urban sprawl occupies more land in cities... We are ready for vertical growth except in the heritage zones such as the Lutyen’s zone in the capital.” he said.

Quoting a report from the UN Habitat he said by 2050, one billion people of India will live in cities. “Urbanisation is not only inevitable but also desirable,” he said but added that urban development has been a subject of “benign neglect” over the years as the issue fell in the domain of the state governments.