Published on: Feb 27, 2016 @ 12:43
The Real Estate Industry has many hopes and expectations from the Union Budget 2016. Both home buyers and developers are hoping that this budget may bring in cheer for them. They hope that the Finance Minister Arun Jaitely may announce some measures in the annual budget for the revival of the staggering real estate sector.
The sector is just emerging from a prolonged slowdown. It expects some changes ranging from service tax restructure, relaxation to the long pending demand and also significant push in terms of project approvals, taxation policies, industry status etc.
Tax benefits for home buyers
The Union Budget needs to bring one critical change related to the deduction on home loan interest. The sector is expecting that the budget may hike the deduction limit on the interest component of home loans. The government should increase the tax deduction limit for housing loans. The current limit of Rs 2 lakh is insignificant given the ticket sizes in metro cities, where prices of homes are very high. Presently, under Section 24 (b) of the Income Tax Act a tax deduction of Rs 2 lakh is allowed on payment of interest and under Section 80c of the Income Tax Act a tax deduction of Rs 1 lakh is allowed for self-occupied house.
As per the existing rule, one can claim the entire amount of interest for the pre-construction period only after the completion of the construction. However, if the property is not acquired or constructed within three years when the loan was taken, the deduction of Rs 2 lakh would not be available to the buyers and the tax benefits gets reduced to Rs 30,000.
This restricts the flow of benefit to the buyers and needs to be addressed. Delays due to approvals and other procedural impediments, warrant that the deduction of Rs 2 lakh should be allowed if the delay is from the builder’s end or the time period be extended from 3 to 5 years.
Besides, the borrowers should get this benefit from the year of borrowing itself and not after the completion of the property as the project delay is wide spread in Indian property market.
GST Bill implementation
To give the real estate industry a very clear taxation structure, the government should try to get the GST Bill passed and then implement it on a priority basis. The GST Bill can replace multiple taxes. Currently, home buyers are liable to pay multiple taxes on purchase of under-construction properties. In addition to the Stamp Duty and Registration Charges, other taxes such as Service Tax, VAT, Excise Duty, Custom Duty and Entry Tax, among others, are levied on home buyers. This combines to form about 22-25 per cent of the total cost of the unit.
Reduction Of Tax Burden On Developers
Since the focus is now on the affordable housing and Housing for All by 2022, the Finance Minister should announce some measures to reduce the tax burden on real estate projects consequently reducing housing cost. Currently 30-35 per cent of the cost of a residential project is because of Central, state and local taxes. Many materials are taxed as input materials and then taxed again as completed projects. Reducing this burden could enable developers to provide cheaper houses.
Real Estate Investment Trusts (REITs): To provide a significant boost for the faster revival of the Indian real estate sector, the Budget must address the issue of REIT. Despite the announcement last year, there has not been a single REIT listing in India till date. The biggest pending issue is the presence of Dividend Distribution Tax (DDT). Developers are hoping that the government will do away with it in the upcoming Budget.
Raise Self-Employed HRA deduction limit
House Rent Allowance (HRA) for self-employed is too low as compared to salaried people. Salaried persons get HRA as a component of their total salary, and can therefore claim a deduction. Whereas, self-employed persons draw lump sum pays without an HRA component and therefore only claim a maximum deduction of Rs 2000 a month under section 80GG. The Budget should raise the HRA deduction limit for self-employed people too.
Incentives to boost Green Projects
The Budget should provide some benefits to home buyers of green real estate projects in the country. Developers of the green residential projects definitely require more encouragement to make them active in this segment. Most home buyers in India are not inclined to paying an extra premium for such projects. The Budget should allocate a combination of incentives to boost the development and homebuyers interest in green residential projects.
The real estate industry is hoping that the forthcoming budget will bring some major announcements in terms of improving investment and taxation climate in the sector. With overall sentiments of buyers looking significantly positive, the budget 2016 should set the tone for the realty sector over the year. The Budget 2016 is expected to announce some good measures to have a positive impact on the sentiment of prospective home buyers and help in the revival process of the the realty market.
Ajay Verma, founder, and writer of The Housing World, a real estate and mortgage news website. He has over fifteen years of rich experience in the above-mentioned industries.