Indian Real Estate Forum - www.indianrealestateforum.com - View Single Post - Real budget expectations in the real estate sector

abhi · 01-03-07

The real estate industry has gone into a tizzy following the Union finance minister's announcement of a 12.5% service tax on commercial lease rentals. Experts say this may have a cascading effect and escalate property prices further.

This is not good news for the property market. The service tax will be passed on to the occupant because the landlord will not absorb it.

We are awaiting the fine print. But it looks like there will be a negative impact on the retail industry. Rentals are a major expense for every retailer and the extent will depend on how much service tax we will have to pay.

It is possible that the tenant may refuse to pay the service tax at 12.5% of the rent and the owners may be required to absorb this increase. This will lower the owner's yield and an investor may turn away from real estate. The domestic real estate venture capital funds, which have already put money into income yielding assets, will suddenly find the income going down by 12.5%.

The effective rate of taxation is lower because of certain exemptions available under the Income Tax Act. The proposed service tax will negate this benefit. This tax might imply that commercial premises that had already been rented out on lease or leave and licence, would also be subjected to the levy with effect from the date to be specified hereafter.

01-03-07	#2
abhi Member Join Date: Oct 2008 Posts: 150 My Mood: Thanks: 0 Thanked 4 Times in 4 Posts	Housing estate gets less real The real estate industry has gone into a tizzy following the Union finance minister's announcement of a 12.5% service tax on commercial lease rentals. Experts say this may have a cascading effect and escalate property prices further. This is not good news for the property market. The service tax will be passed on to the occupant because the landlord will not absorb it. We are awaiting the fine print. But it looks like there will be a negative impact on the retail industry. Rentals are a major expense for every retailer and the extent will depend on how much service tax we will have to pay. It is possible that the tenant may refuse to pay the service tax at 12.5% of the rent and the owners may be required to absorb this increase. This will lower the owner's yield and an investor may turn away from real estate. The domestic real estate venture capital funds, which have already put money into income yielding assets, will suddenly find the income going down by 12.5%. The effective rate of taxation is lower because of certain exemptions available under the Income Tax Act. The proposed service tax will negate this benefit. This tax might imply that commercial premises that had already been rented out on lease or leave and licence, would also be subjected to the levy with effect from the date to be specified hereafter.