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City Beat: Service Tax Breather For Delhi Home Buyers [Video]

City Beat: Service Tax Breather For Delhi Home Buyers [Video]

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In a move that brought cheers to many, the Delhi High Court recently ruled that buyers of under-construction properties in the National Capital Region would not be liable to pay service tax. The ambiguity on arriving at service tax charges led to the court decision.

However, a home buyer will have to pay these charges if he opts for any value addition to the property, according to the court judgement.

The high court also directed developers to refund the money they had already collected as service tax, along with asix per cent interest, to the buyers who had purchased houses in 2012. This is the year when the Centre had introduced this tax.

How does the government decide the amount that a home buyer has to pay as service tax on an under-construction property? Typically, the value of the land is kept at 75 per cent of the total value of a property, and the service tax is levied on the remaining 25 per cent. For example, if you buy a house for Rs 1 crore, your developer will collect service tax on Rs 25 lakh, considering Rs 75 lakh to be the worth of the land. Now, at the rate of 15 per cent, you have to pay Rs 3.75 lakh as service tax to your developer. The developer then pays this amount to the Central government.

Buyers of under-construction properties in the NCR have faced a lot of trouble in the recent past. Project delays and cancellations forced many buyers to pay rent, as well as equated monthly instalments (EMIs) for their home loans. According to experts, the court judgement will certainly come as a breather to home buyers, not only in the NCR but also in other regions. Citing the Delhi High Court judgement, buyers are likely to seek service tax waiver in other property markets, too.

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