While the budget brings cheer to all individuals because of the change in the tax slabs thereby leaving more money in the hands of the citizens; some of this cheer is muted on account of inflationary provisions as well as the introduction of service tax for home buyers.
The increase in the price of diesel and petrol, excise on materials including cement will create an upward pressure on construction costs and subsequently on selling prices of apartments. The service tax will lead to a further increase in the cost of flats, of between 3%-4%.
An apartment costing Rs. 40 lacs would cost an additional 1.25 lacs on account of service tax, (leading to an additional EMI payment of approximately Rs. 15,000 per year). However a person with an income of Rs. 8 lacs and above per annum would save approximately Rs. 50,000 per year on account of the tax slab rationalization. Effectively; the Finance Minister has given the tax payer more money with one hand and has taken back some with the other.
The service tax however is not payable in cases where the builder has obtained the occupancy certificate and all payments are made after obtaining the occupancy certificate. We believe that this provision in the budget will lead to increased demand for ready homes (with occupancy certificate in hand.) consequently, pushing up prices of ready property to an extent.
We have already seen a marginal increase in the interest rates from many leading Housing Finance Institutions.
The budget also extends the scheme under section 80Ib(10) allowing developers to complete projects in certain categories to be completed in 5 years as opposed to the original provision of 4 years. This change comes as a shot in the arm for many developers whose projects did get delayed on account of the global meltdown.