Union Budget 2016: Impact On Real Estate Industry

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:

Tax  Benefits  For  Home  Buyers  

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.

HRA  Benefits 

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.

Other  Measures

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.

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Ajay VermaAjay 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. www.thehousingworld.com
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