Sucheta Dalal :Tax of 1% on under-construction properties to extract Rs1037 crore from Mumbai Metropolitan Region alone
Sucheta Dalal

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Tax of 1% on under-construction properties to extract Rs1,037 crore from Mumbai Metropolitan Region alone  

May 17, 2010

The recent proposal of the State government to charge 1% for all under-construction properties will be passed on to the consumers, but will the beneficiaries get the money or will it be used for frivolous purposes?

The Maharashtra Cabinet cleared a proposal last Wednesday to charge 1% tax on all private under-construction property, ostensibly for the welfare of more than 20 lakh construction workers. This new tax has to be paid by developers, which means it will be eventually passed on to consumers.


Real estate research and rating firm Liases Foras had calculated that the amount raised under the new tax would be about Rs1,037 crore from the Mumbai Metropolitan Region (MMR) alone, taking into account 17 crore sq ft of under-construction property currently (for the fourth quarter which ended in March 2010) assuming a weighted average price of Rs6,100 per sq ft. There are a number of unsold properties in Mumbai; this new tax will again increase the unsold inventories in the city. The tax is proposed to be levied on both residential and commercial areas.


“Over time, developers may pass on the pressure of the 1% tax on to the consumers and property prices will also rise due to the new tax,” said Sunil Mantri, president, Maharashtra Chamber of Housing Industry (MCHI).


“The tax will be passed on to consumers. The proposed 1% tax on construction cost is not a big amount, but the construction cost is never revealed to consumers. It remains to be seen how the cost will be calculated, collected and used. The administrative work involved would be huge,” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.


The tax collected under this scheme will be used for workers’ welfare like insurance, training and scholarships for children. The Maharashtra Cabinet has set up a high-powered committee for this purpose; it has recommended creating a separate Board to initiate various welfare measures for them.


“Real-estate prices are already unaffordable in Mumbai and another 1% tax will add to the burden of the consumers as they are the ones who have to pay the tax at the end of the day,” said Pankaj Kapoor, founder, Liases Foras.
Pallabika Ganguly

-- Sucheta Dalal