Jaipal Reddy wants proposal to tax under-construction apartments withdrawn

Union minister for urban development S Jaipal Reddy has promised the housing industry to press the finance minister for withdrawal of a controversial proposal to tax under-construction apartments.

The government is seeking to introduce a contentious service tax on apartments that are still under construction as per the provisions of the budget for 2010-11. According to developers, this would increase property prices by 4 per cent and tax experts have referred to this new service tax as triple taxation for the realty sector.
 
He said as the sector was not in the pink of health his ministry would recommend that the finance minister withdraw the service tax proposal in the budget.

He was speaking at the national conference on Indian real estate, organised by the Assocham in New Delhi yesterday. He said the government was in favour of "vertical growth" of cities instead of urban sprawl due to scarcity of land and a more flexible floor-area-ratio (FAR) regime. He said a higher FAR limit would allow more floors to be built to relieve the pressure on urban land.

"Vertical growth would be facilitated due to scarcity of land. Urban sprawl occupies more land in cities.… We are ready for vertical growth except in the heritage zones such as the Lutyen's zone in the capital," he said.

Quoting a UN Habitat report, Reddy said, by 2050, 1 billion Indians would live in cities. "Urbanisation is not only inevitable but also desirable," he said. However, he added that urban development had been a subject of "benign neglect" over the years as the issue fell under the jurisdiction of the state governments.

The real estate sector has been badly hit due to the Reserve Bank of India's 25 basis points (bps) surprise hike in reserve and repo rates.