Thursday, February 05, 2009

Flat buyers exempt from service tax

What happens to people who have already paid service tax ? Will that tax be refunded by the builders to the buyers ? As usual the order is incomplete and ambigous. Kudos to the tax board.
DNAIndia reports.

Mumbai: The Central Board of Excise and Customs (CBEC) has made it clear that flat buyers, developers and builders are not liable to pay service tax.

In a circular (F.No.137/12/2006- CX.4) issued on January 29, the board has said that generally, the initial agreement between the developer (promoter/builder) and the buyer is an "agreement to sell". As per provisions of the Transfer of Property Act, this does not "create any interest in or charge on such property".

It is only after the construction is completed and the agreed sum is paid that a sale deed is executed, transferring the ownership of the property from the builder/developer to the buyer, the board has said.

Any service provided by the developer during the construction of a residential complex -- before the execution of the sale deed -- would be "self-service" and, consequently, not attract service tax, the board has clarified.

If the buyer enters into a contract for construction of a residential complex for personal use with a developer (promoter/builder), who provides design, planning and construction, then such an arrangement would also not invite service tax.

Flat buyers don't need to pay service tax
It is excluded from service tax under the definition of "residential complex", the board has said.

However, in both these situations, if services of a contractor, designer or a similar service provider are taken, then such persons would be liable to pay service tax, the circular says.

The board has clarified that the builder is not a service provider and, hence, not liable to collect service tax. But contractors or designers engaged by the builder should charge service tax from him.

The Authority for Advance Ruling had in the case of Hare Krishna Developers ruled that the builder/developer was liable to pay service tax.

But in the case of Magus Construction Pvt Ltd, the Gauhati high court had ruled that the builder/developer was not liable to service tax.

The two conflicting judgments had created confusion, which the CBEC circular has now put to rest.


Anonymous said...

The real estate agents/builders/speculators, who are in denial mode, please don’t get nervous since you have THE ONE from the elite group to share your dreams.

India nowhere near recession: Chidambaram

Tuesday, December 16, 2008 15:22 IST
New Delhi: NEW DELHI: India is "nowhere" near recession, though it has been affected by the global economic meltdown, home minister P Chidambaram said on Tuesday.

"Many countries are facing recession, but India is nowhere close," Chidambaram, who previously held the finance portfolio, said during question hour in the Rajya Sabha.

Anonymous said...


Whats the confusion in the circular? Why are you speaking like the developer community?

Vik said...

so all service tax should be refunded for people who have gained possession ?

Anonymous said...

Shameless IT stalwarts who were giving a wrong picture of growth since 2008, are coming out of denial mode. The facts seem to flying thick in the face. Just a few days back they were indulging in a mad hysteria of delusional prospects (30-35% growth) of more business coming in due to the downturn in US economy. They were pinning their hopes on the Merger & Acquisitions in the west causing a boom in the "Consulting" business. Until today they have failed consistently to convince how they will be getting more business when most of the advanced economies have entered officially in the recession.

IT biggies may lag industry growth as orders slow down

Gartner India’s principal research analyst Diptarup Chakraborti said: “If the data is true, then what it indicates is that the big It companies, which get a lot of business from the Fortune 500 companies are feeling the pinch of the recession much more.”

India’s IT bellwether Infosys, will grow below the industry average for the first time in years, as it has guided 12-13% this fiscal. It gave a revenue guidance of 19 to 21% at the beginning of the year, which it had to revise in subsequent quarters due to the deteriorating economic environment and currency headwinds.

antino said...

India’s IT bellwether Infosys, will grow below the industry average for the first time in years,

The real estate agents/builders/speculators, who are in denial mode, please don’t get nervous since you have THE ONE from the elite group to share your dreams.

Anonymous said...

Real estate developers/Techies scrambling for cash

“Real estate developers and many MNCs that own fleets of luxury cars hypothecated to banks have started disposing them. Banks in turn are putting them up for sale, which we are offering at throwaway prices,” he adds.

So much so, a second-hand car dealer in Whitefield is selling a Mercedes for just Rs 15 lakh. And just to offload inventory, Classic Automotives is planning to launch a scheme that will offer buyers free gold worth Rs 1.25 lakh with the purchase of a car.

Priyanka Govind (29) bought a Maruti Swift last year for Rs 5.6 lakh. She was expecting a promotion and an increment, which would help her with the EMI. But that pay hike didn’t happen. “I opted for a five-year loan at an EMI of Rs 10,000. But it was becoming difficult to manage with a salary of just Rs 35,000,” says the IT professional.

She disposed of her car in the same year for just Rs 3.8 lakh. An official of Car House, a second-hand dealer in Koramangala, says, “In the last four months, on an average, the number of people looking to sell their cars has increased by 60 a month, as compared to the same period in 2007-08.”

He adds, “Most of the sellers are IT professionals, who have been hit by the downturn in the market.”

Anonymous said...

Answers to all the questions about the unprecedented boom of 2003 to 2008
Who is Raghuram Rajan?

Anonymous said...

Real estate companies turn to private lenders
8 Feb 2009, 0600 hrs IST, Raja Awasthi & Anand Rawani , ET Bureau

NEW DELHI: The much-vilified loan shark, once the staple of movies and theatre, is now donning angel wings to save developers from the swamp that nstitutional lenders abandoned them in..

In October last, SundayET had reported that liquidity concerns were tightening the screws on real estate developers and many of them were picking up money at 40-48% (interest per annum) from the market. This was bound to happen as private equity deals had disappeared from the market and their stocks were hitting 52-week lows on Dalal Street.

According to a senior bank official, who did not want to be identified, banks are very reluctant to give loans to real estate players. “Since we are expecting a correction in real estate prices, it is necessary to keep a cushion and ask for a higher collateral,” he said.

Says Amitabh Guha, ex-joint MD of SBI: “Additional collateral asked for by commercial banks can be attributed to management of the loan sanctioned and increased risk for lending to real estate sector due to slow down in the economy.”


For a cash loan of Rs 100 cr, a developer pledged the entire Rs 150-cr project

Major realty cos seeking cash from private financiers promise 50-70% returns

Publicly-listed realty cos pick up Rs 4,000-cr debt

Many cos picking up money at 40-48% (interest p.a) from private financiers

Bharat said...

If they are promising returns of 70% to money lenders. The profit margins of Builders must easily be in excess of 100%!!

Anonymous said...

Guys dont save a lot ---

High foreign exchange reserves have, in the current global recession, saved Asian countries (including India) from the travails they suffered in the
Asian financial crisis of 1997-2000. So, they must aim for rising forex reserves in future too, right? Wrong.

In truth, high Asian forex reserves are an important reason for the current recession. High reserves promise safety in a storm. But, beyond a point this safety becomes illusory, because rising forex reserves worsen the global imbalances that have precipitated the recession.

The global recession has many roots. One is the erosion of traditional US household prudence. US households used to save 6% of their disposable income. But in recent years they went on a borrowing and spending spree, and household savings dropped to virtually zero. Corporations and financiers also ran up record debts, partly to buy assets such as houses, stocks and commodities. This created huge bubbles in all three markets.

When the bubbles finally burst, US households, corporations and financiers found themselves in dire straits. Many financial giants were rescued by the government. Meanwhile households, sobered by the turn of events, started saving 4% of disposable income, up from zero. More saving meant less spending, and made the recession deep and sharp.

Most Asians are smugly blaming US imprudence and loose financial regulation for the crisis, while portraying themselves as innocent victims. Yet, they must share the guilt too. US profligacy did not arise in a vacuum. It arose in part because Asian insistence on high forex reserves meant that they poured dollars into the US to buy US securities. This flood of dollars from Asia drove down US interest rates, making it very attractive to borrow. That spurred the borrowing spree, and the accompanying bubbles.

Historically, rich countries had surplus savings, manifested in a trade surplus. Poor countries lacked savings, manifested in trade deficits, with the deficit being plugged by an inflow of dollars from rich to poor countries. For the world as a whole, current account surpluses and deficits of countries must necessarily balance. Historically, the surpluses of rich countries were offset by the deficits of poor ones.

But after the Asian financial crisis, something strange happened. Asian countries, above all China, began generating huge savings surpluses, manifested in huge current account surpluses. Many used undervalued exchange rates to artificially create trade surpluses, which were then invested in US treasuries (that is what foreign exchange reserves are).

However, poor Asians could not run huge surpluses unless others were willing to run huge deficits. Remarkably, the rich US began to do so. This arose partly from the sophistication of its financial system, which found many ways - too many, in fact - of converting the flood of money from Asia into a borrowing and spending spree. This sharp rise in US spending boosted the global economy, and created the record global GDP growth in 2003-08. US demand sucked in huge quantities of manufactures and services from Asia, above all from China. Asian manufacturing sucked in huge quantities of commodities from Africa and Latin America, raising incomes there too.

Alas, this boom was based on huge global imbalances that had to be corrected at some point. No country, not even the rich US, could keep running gargantuan trade deficits forever, to offset the surpluses of Asia. US asset bubbles burst, the boom ended, and US spending and imports plummeted.

Ending the consequent recession means reducing global imbalances to manageable proportions. Americans will have to save more, spend less and export more. Asian countries, especially China, will have to consume more, save less, and export less. This re-balancing will restore global balance, and enable global growth to rise sustainably again.

However, such re-balancing means that Asian countries must stop piling up ever-rising forex reserves (and trade surpluses). Such reserves represent excessive saving, excessive exports and insufficient imports. Excess forex reserves have provided apparent safety to Asian countries in a recessionary crisis, yet are also a cause of that very crisis.

What will happen if Asians insist on trying to keep savings and forex reserves high? Well, if Asians keep savings high and Americans and Europeans do so too, then world demand will collapse and the recession will become a Depression. Asians must recognise that high forex reserves serve as a safety cushion only up to a point, and beyond that exacerbate global imbalances that threaten disaster. Saving too much can be as harmful as saving too little. Unless Asian countries recognize this and go slow on future reserve accumulation, the recession may become worse than anyone dares imagine today.

Observer said...

It is silly to suggest that Asian "savings" caused this entire trade imbalance. There is no savings glut. Countries like India and China (especially) printed Rupees/Yuan to buy dollars. This was done to keep the exchange rate favorable for the two currencies. If this printing and artificial suppression was not done, then the trade imbalance would have caused these currencies to rise considerably, and thus a return of manufacturing/services to the US. The system would have naturally balanced itself out.

The result of the printing was the massive expansion in the money supply in India and China, and hence the bubbles in asset classes like stocks and real estate. If China had not purchased US securities, then the exchange rate would have been far worse, and the workers in China would not have been able to save anything. Many would not even have jobs.

I can see why very few economists could predict the bubbles and the crashes over the last few decades. Most economists have a poor understanding of the basics. Economics is not really a science, it is more akin to psychology, and the study of human sentiments. No wonder it has such a poor prediction record.

Anonymous said...

When they say Asian savings, they mean only "China". India is not a part of Asia for Americans. They think Asain is Chinese.


erebus said...

Another grim reminder that the real estate bubble is bursting...

THe cining on the cake is that BPTP has to pay 130 crores as penalty for this land deal

Another bit of info that i am myself privy to, around 3 months ago, there was a lot of buzz about DLF launching its housing project in the middle of delhi, broker after broker called me for pre launch options(on aplot it bought from swanantra bharat mills, close to moti nagar, around 7 km from Cannaught place), now it appears that the project has been shelved altogether. all those brokers have simply disappeared, who were claiming that the entire project has ben sold off even before the launch.