Published on: Mar 2, 2016 @ 10:05
The Union Budget 2016 introduced many measures to give a huge push to the staggering real estate sector. It has been going through tough times for the last few years and the expectations from this budget of the NDA government were very high.
Finance Minister Arun Jaitely has announced several measures to support the aggrieved real estate industry. He introduced many measures like waiver of Service Tax for houses built under 60 square metres, 100 per cent deduction for profit on development of affordable housing projects, incentives to first-time home buyers by offering an additional exemption of Rs 50,000 for housing loans up to Rs. 35 lakh, provided cost of house does not excced Rs 50 lakh, exempting REITs from dividend distribution tax etc.
Some of the key aspects of the Union Budget 2016 are as follows:
FM Arun Jaitley proposed to allow deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned during next financial year i.e. April 1, 2016 to 31st March 2017 for the first-time home buyers, provided the value of the house doesn’t exceed Rs 50 lakh.
The 2016-17 Budget also proposes tax relief on interest payment on home loan if the property bought, or under construction, is completed within 5 years from the end of the financial year in which the loan was availed instead of the current 3 years.
Now, you need not to worry even If your builder does not give you possession of your dream home within 3 years. You can claim deduction even if the acquisition or construction is completed within 5 years instead of 3 years from the end of the financial year in which the loan was taken.
Reduction of Tax Burden on Developers
A major relief is that no excise will be levied on RMC produced at the construction site. The excise duty exemption on Ready Mix Concrete (RMC), presently available to Concrete Mix manufactured at site for use in construction work is a welcome move for the industry and will lower the cost for housing construction.
Exempting REITs From Dividend Distribution Tax
Finance minister Arun Jaitley has addressed the issue of dividend distribution tax (DDT) by removing this final tax hurdle in the way of Real Estate Investment Trusts (REIT). The Budget removes DDT, clearing the way for the successful listing of REITs in India.
REITs are now exempt from paying the 17 per cent DDT when they hand out dividends to investors.
The removal of DDT has been the biggest takeaway and a progressive step for the real estate sector and will attract fresh investments into the sector. The developers and fund managers can now raise funds through it and create liquidity.
For employees who don’t get HRA benefits, the budget has increased the limit of deduction of house rent paid under section 80 GG from Rs 2,000 per month to Rs 5,000. This would result in tax savings in the range of Rs 3,708 to Rs 12,204, depending on the income slab.
Incentives to Boost Affordable Homes
The budget 2016 provides incentives to boost affordable segment by giving 100 per cent tax exemption for profits to an undertaking from a housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019, and is completed within three years of the approval. Minimum Alternate Tax (MAT) will however apply to these undertakings.
Now, builders will enjoy 100 per cent tax exemption on profits if they build apartments up to 300 sq ft in size in the four major metro cities and up to 600 sq ft in the non-metros. These flats have to be built starting June 2016 and completed by March 2019.
The 100 per cent tax exemption from profits of affordable housing make it more viable and now developers would increase their focus on this segment which has been largely ignored owing to business viability issues. The project completion period could have been more as approvals and construction generally take a long time.
The exemption from service tax on construction of affordable houses up to 60 square metres under any scheme of the Central or State Government including public private partnership (PPP) schemes is another step in the right direction.
This will benefit developers focusing on affordable housing and will give much-needed impetus to affordable housing projects across the country.
The budget also proposed to digitize land records. A beginning has been made in this budget with an outlay of Rs 150 cr for digitizing land records from April 16. A much awaited step in the right direction which will render land records free from encumbrances.
In fact, the addition of 0.5 per cent Krishi Kalyan Cess on all services would cause additional burden on home buyers who are already burdened with other taxes.
This budget can be termed as a balanced and growth oriented with emphasis on the development of infrastructure and affordable housing segment. The budget has given a strong push to affordable housing segment in line with government’s objective to provide housing to all by 2022. This initiative will benefit the home buyers, especially the middle and lower income group in Tier 1 and Tier 2 cities. This will also give a boost to developers in thin margin affordable housing business.
The announcements in the Union budget 2016 addresses some of the industry challenges to drive the real estate sector out of the current situation of sluggishness. All these steps taken together will help give the much needed fillip to the housing sector and strengthen Indian economy.
Ajay Verma is a founder and writer of The Housing World, a real estate and mortgage news website. He brings with him 20+ years of rich experience in the real estate and mortgage industries. He has worked in senior roles in Delhi and NCR in the above-mentioned sectors.