• Service-tax could significantly increase the transaction cost for specified asset classes. Service-tax @ 10.3% is now proposed to be levied on value of (i) additional services provided by the builder such as offering preferential location, etc (ii) lease of vacant land, if construction is undertaken thereon. For developers, there may also be a trade-off between the realizing pre-sales, and reducing transaction costs, as service-tax would now be levied on sale of property, unless the entire consideration is paid after completion of construction.

• On the other hand, extension of the interest subvention of 1% for low cost housing to March 31, 2011, along with increase in the slab rates for individuals should provide the necessary demand boost for low-cost housing.

• In what should provide much-needed succor to residential developments staring at project delays, the time-limit for completion of projects eligible for deduction under section 80-IB has been extended to 5 years. Liberalizing the limit of commercial space that could be created in such projects will also help. On the flip side, however, companies executing such projects would now need to pay a higher minimum alternate tax of 19.93%.

• Hospitality would receive a much-needed boost by the investment-linked tax holiday being made applicable for all new hotels in the 2-star plus categories.

On the positive side, however, the Finance Minister did acknowledge the contribution of SEZs to India's export-growth, and expressed the government's commitment to the continued growth of SEZs. One could, therefore, expect that the revised Direct Tax Code, which the government intends introducing by April 1, 2011, may not hopefully tamper with the fiscal incentives being offered under the SEZ regime.

By Avinash Narvekar
Tax partner-real estate, Ernst & Young