Serviced apartments may come under commercial property tax net

Bruhat Bangalore Mahanagara Palike (BBMP or Bangalore Corporation) plans to bring serviced apartments under commercial property tax net.

So far, the serviced apartments, which have mushroomed all over the city, have been paying property tax as residential units.

This financial year (2011-12), BBMP expects property tax collection to be around Rs 1,500 crore. It also expects revenues of Rs 50 crore from the serviced apartment segment this year.

“In the IT zone, many serviced apartments are operating out of residential houses and carrying out as commercial activity. Looking at the commercial nature of their business, we plan to tax at commercial rate,” Mr G. Manjunath Raju, Chairman - Standing Committee for Taxation and Finance, BBMP, told Business Line .

According to estimates provided by the Revenue Department of the Corporation, which recently conducted a survey, there are about 10,000 serviced apartments located in Bangalore's IT hubs. These localities, mostly along the Outer Ring Road, include Whitefield, K.R. Puram, Marathahalli, Koramangala, and HSR Layout.

The survey also says that a few serviced apartment providers, after establishing themselves in the southern parts of the city, have now set their eyes on northern parts.

“The amount set by us is conservative. We have done keeping in mind that four months has already gone by this financial year,” said Mr Raju. Since serviced apartments are brought under the tax net for the first time, BBMP has proposed tax to be 1.5 times the normal property tax paid by them at present, he explained.

These serviced apartments, some of them developed by realty and hospitality majors, offer a ‘home away from home' for IT employees who stay in the city for long duration on work.

Prominent developers

Some of the city's prominent developers such as Brigade Group and Prestige Group have a sizeable inventory in the serviced apartment segment. Brigade Group operates Brigade Homestead, and has also tied up with Accor for its Mercure brand — Mercure Homestead Residences. Prestige Group, on the other hand, has tied up with Oakwood for Oakwood Premier Prestige Bangalore.

With very few brands available and several stand-alone facilities offering serviced apartments across the city, the additional taxes would have a negative impact on the business potential of this sector and would also hamper efforts to organise the sector, said Mr Vineet Verma, Chief Executive Officer, Brigade Hospitality Services, which operates the Brigade Homestead serviced apartments.

“Earlier, the serviced apartments were operating more like guest houses, but now in terms of the services offered, the gap between serviced apartments and hotels is closing in,” he said. The sector, in fact, was looking forward to “some incentives” from the government, he pointed out.

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