Service tax on the sale of homes is a concept rather difficult to comprehend. When a developer enters into a contract with a home buyer the element of a service being provided to the customer is practically non-existent. Where then does the question of service tax arise?
What is delivered by the developer is a home which comprises two important elements - land and building. There is already a plethora of taxes on both land and buildings through a diabolical combination of stamp duty, VAT, excise duty, and whatever. These taxes have together combined to place a cost burden on the home buyer in excess of 35%. Add to this the painful fact that the home buyer is paying for all this from income which has already suffered income tax and the duplicity and irrelevance of service tax in respect of the sale of homes comes into perspective.
Whilst the budget has mandated that service tax is indeed applicable in the case of payments made for homes which are in the process of being constructed, it has at the same time stipulated that it will not be applicable where completed homes are sold. Conceptually, there is no difference between the two cases. If service tax is not applicable when finished homes are sold then there should be no different treatment for any other type of sales contracts.
You have pulled the rug from right under our feet on this one, Mr Finance Minister. Time for a re-think?"
