Sunday, March 31, 2013

LBT, New Financial Year & Real Estate!

The only difference between death and taxes is that death doesn't get worse every time Congress meets...Will Rogers
Well here the congress is in USA & the famous quote about taxation is by actor & social commentator but perfectly applicable here in our country also as each new financial year is getting worse than earlier! Especially when its real estate in Maharashtra then with every new financial year I really wonder what new torture awaits for the industry which is so vital for the present urban scene!
Many reader will frown on my this statement as what a builder has to worry as isn’t real estate like a hen laying golden eggs? So why there should be worry for a builder with ever increasing prices of land & subsequently the end product i.e. a home which can be flat or a row house or even commercial space? Well agreed developers are never recognized for their logical approach or long sight about their industry but even they also can’t be so short sighted as not to understand about the future of this industry the way taxation & all other policies are being laid by our Govt. We are on the verge of ending financial year & the new one will start by next fortnight & if we go through the last year then what outcome we see from the budget or the policies regarding real estate of the city or even state? In last year the industry’s finish product has been burdened by increase in stamp duty as well registration charges. Vat i.e. value added tax has been implemented by state govt & service tax has been applied by the central govt despite the various builders associations oppose to the same. The ready reckoner values ( base prices in various areas decided by Govt on which stamp duty is applied) in of the flats have been kept on increasing & at many places the actual deal price is less than the ready reckoner value yet the buyer end up stamp duty at higher rate than his deal price! Same was about service tax as when we are paying service tax to our contractors & stamp duty on land value how the service tax can be applied on the flat price? I am no tax expert but these were the questions which came to a common man’s mind. And on the top of it the service tax dept is now demanding service tax even on the maintenance deposit which we take from every flat holder & which is utilized to take care the expenses till the society conveyance gets done! And even on the money taken for expenses of getting power connection which the developer has to pay to MSEDCL i.e. power supply company.
Here the most liked argument of people is who cares? Where builders have to pay? All this gets cut from the pocket of the flat buyer so why builder should worry about the taxation. Agreed every indirect tax gets cut from the end user only & real estate is also no exception but then have we thought why Auto Rickshawalas or Taxiwalas go on strike when there is any hike in petrol prices? Why they should go on strike when it’s the traveler by the taxi who is going to shell out the money? Well even they are smart enough to know that every rupee more for the travel is going to keep traveler away from using the taxi & that’s why in end it’s the taxiwala or rickshwala who is going to suffer by petrol price hike & that’s why they goes on strike. Here I will give a simple example about rising costs in real estate,  whenever there is a new movie get released its houseful on a week end & if a family goes to watch it & they found the tickets have sold out then they will opt to buy the ticket in black market. Now if the original price of the ticket is Rs 250 then the guy will buy it on premium say at the most Rs 500 but if it goes beyond  that then he will go back saying that he will watch the movie sometimes later!
Well same thing will happen if we keep on allowing to get the homes costlier & the whole real estate will come to stand still with this rate! Already the prices of homes in Metros are beyond budget of the middle class & it’s this middle class who is the back bone of the real estate. And unfortunately with every new policy about taxation the govt seems to be on mission to drive out this middle class from the market.
For e.g. the latest nail govt has hit on the eve of passing financial year if LBT i.e. local body tax. Agreed, it is for balancing the local body’s income  after squashing out of octroy but how  it can be applied on homes when earlier no such thing was there? When every material which is being used for the construction will be charged with LBT then why LBT of flats is being applied that to upon the agreement cost? ( Though it’s not clear yet but it’s said to be like that) How can be its applied for the land cost as well labor costs involved in costing of the flat? So many questions to be answered & yet the govt is going ahead with applying LBT on homes making them more costlier.
If the news is true about LBT being charged by 1% of agreement cost then the taxes toll itself goes to nearly above 10% in all on the agreement coast. Means for a flat of Rs 30 lacs the buyer will be paying nearly Rs 3 lacs just in form of taxes like stamp duty, registration, vat, service tax & LBT! Leave apart the costing he is already paying for Development Charges, MSEB power supply, NA & so many others which the developer is paying to various govt departments while building the structure.
The million dollar question is after paying so many taxes & premiums does the home which the buyer is getting, provides him the entire so called infrastructure for making his life easier? Unfortunately the answer is big NO! After paying for every single rupee govt is levying on the home yet the scene is poor flat holder rarely gets things like water supply, public transport & power. Leave apart things like education & medical but we are repeatedly failure to provide very basics of life to the common man in spite of charging him for these services.
Here is where the role of developers is important. As when we say we are building societies it doesn’t mean just to build concrete walls , sale them & make money. Try to raise the voice to the authorities for such issues & make life of our client a bit easier is also our responsibility. Instead of so many taxes there should be one plain simple mode of taxation for the homes making them affordable & let various departments of the govt have their share from that central collection. Also the taxation should be rational & keeping in mind the product. We gave all benefits for the Information Industry or Tourism Industry as they generates revenue, then what is real estate doing? This is probably the second largest industry after automobile industry in generating jobs & above all it produces the most essential commodity for the urban India i.e. the Home. It has to be treated with equal or more respect at par with other industries or else as the quote says each new financial year will be worse than death for the middle class home buyer & if he dies that means it will be the death of real estate industry itself, mind it friends!

 Sanjay Deshpande

Sanjeevani Dev.

Envo-Power Committee, Credai, Pune

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  1. Sanjay do u think any of the flat buyers are going to act on this or make a statement about it, i think rather they will accept this new tax and go on.. this is very sad as flat buyers are losing out on affordibality..


  2. Nice Article Sanjay.
    Really need to be aware of all these new policies by Govt ...!

  3. I think it's cute! It looks like a perfect little and good information. Thanks..
    Vanalika Noida is a residential project laocted in Noida Sector 107.


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