Service tax on an under construction property

In my previous post “House Hunting in Mumbai”, I had described how me and my wife have been looking out for property over the last few weeks. Recently, we came across a couple of under construction properties which we really liked and decided to do the approximate costing for those apartments. While doing the costing, we came across another term “Service Tax”, which is being levied at 3.09% of the cost of the property. I was very surprised to see that, but I didn’t pay much attention to it , thinking it is just a component of the overall cost structure of the property. While discussing this with a friend, he asked me what is this Service Tax? He mentioned he didn’t pay the same, when he got a property. So it turns out, the govt. has now decided to levy Service Tax on under construction properties as the builder is providing “us” a service by building the property. This is now applicable since July 2012.

If you are a cost conscious consumer (who isn’t in these days when the budgets are tight), this additional 3.09% is a huge cost.  As it is we are paying 6% stamp duty on the flat cost, plus there is Rs. 35000 of the registration of the property, there is 1% Value Added Tax and now this 3.09% Service Tax. So if you add up, it is an increase by atleast 10% on the overall cost of the property. So if the cost of the property is say Rs. 50 lakhs, the consumers end up paying an additional Rs. 5 lakh on the property. People budgeting to buy homes should also keep this in mind, while arranging their finances.