Union Budget 2020 And Its Proposals For The Real Estate Sector
Union Finance Minister Nirmala Sitharaman presented the Union Budget 2020-21 on Feb.01 amid the slowdown in the realty sector. Finance Minister announced a slew of measures to boost the stressed real estate sector. The Budget continues to focus on affordable housing and urban infrastructure. The Budget offers some stimulus for real estate as the sector has had to deal with a series of disruptions in the past a couple of years.
Budget 2020 has proposed the extension of additional deduction of up to Rs 1.5 lakh tax benefit for the interest paid on home loans for the first-time homebuyers of affordable houses. This benefit can now be availed till March 31, 2021.
The government renewed its commitment to boost affordable housing by extending the tax holiday by a year. The finance minister announced that builders will get tax holiday for another year on affordable housing projects approved till March 2021.
She said that this budget is aimed to enhance the incomes and purchasing power of the consumers as the economy’s fundamentals are strong, and inflation is well contained. In the 2020 budget, the government has decided to help the common man by reducing the income tax burden on individuals to boost consumer sentiment to give a big push for consumption.
The union budget 2020 has introduced following positive measures to boost the realty sector:
Tax deduction Of Rs 1.5 lakh on housing loans extended by one year
Aiming to boost demand in the housing sector, FM Nirmala Sitharaman announced a proposal to extend additional deductions of up to Rs 1.5 lakh tax benefit for the interest paid on home loans for the purchase of affordable houses. To achieve the goal of ”Housing for All” and affordable housing , she had announced in the last budget an additional deduction of up to Rs 1.5 lakh for interest paid on home loans taken for the purchase of an affordable house by the first-time homebuyers.
The minister said that she has proposed to extend the date of loan sanction by one more year till 31st March 2021 for availing the additional tax deduction in order to ensure that more consumers avail of this benefit and to further incentivize affordable housing.
The deductions so far apply on housing loans approved on or before March 31, 2020, for the purchase of affordable homes. However, this was allowed for first-time home buyers for the purchase of affordable homes worth up to Rs 45 lakh. The additional deduction of Rs 1.5 lakh, over and above the existing Rs 2 lakh was introduced in the last year’s budget and is being provided under the Section 80EEA.
As a majority of homebuyers fall in the lower and mid-income segments, this additional tax benefit on interest paid for the home loan will significantly benefit first- time home buyers of affordable housing.
Tax holiday for developers of affordable housing projects extended by a year
FM Sitharaman proposed to extend the date of approval of the tax holiday for the developers by one more year to help them claim 100 percent tax deduction on profits earned from affordable housing projects. The new date for the approved affordable housing projects has been extended till March 31, 2021, to ensure the continued interest of developers in this segment.
In order to boost the affordable housing segment in the country, a tax holiday for the developers was proposed in the last year’s budget in July 2019. This proposal of tax holiday for the developers allows them to claim 100 percent tax deduction on profits earned on affordable housing projects approved till March 31, 2020.
The tax holiday is being provided under section 80-IBA of the Income Tax Act. It was applicable to the projects approved by the competent authority during the period from June 1, 2016, to March 31, 2020.
Increase in the concession to real estate transactions
FM Sitharaman also announced the proposal to increase the limit of 05 percent to 10 percent concession for the purpose of taxation to real estate transactions in order to minimize hardship and provide relief to the housing sector. Currently, while calculating the income tax from capital gains and other sources in respect of transactions in real estate, if the consideration value is less than the circle rate by more than 5 percent, the difference is counted as income for both the buyer and seller.
Focus continues on urban infrastructure
The Union Budget 2020 also unveiled the government’s intentions towards bettering the urban infrastructure. As much as Rs 1.70 lakh crore has been allocated in this budget to transport infrastructure, including railways. Growth of urban infrastructure is imperative to provide an impetus to India’s sluggish real estate growth as well as to India’s economic growth with a combined impact on enhancing the GDP growth inclusive of employment creation. Real estate and urban infrastructure play a crucial role in boosting the economy.
It is proposed in the budget 2020 that Delhi-Mumbai and Bengaluru-Chennai expressways will be completed by 2023. Besides, 100 more airports are proposed to be developed by 2024 and five new smart cities have also been proposed .
Moreover, the initiative taken in this budget for the income tax benefits being offered on the taxation rates is a positive step of creating a disposable surplus in the hands of consumers to push consumption.
However, some other majors can also be considered by the government to spur up the demand and consumption in the housing sector such as reduction in stamp duty for all real estate transactions to induce the fence-sitters to turn into the actual home buyers and removal of the price cap of Rs 45 lakh to provide the benefits to all the houses which falls into the prescribed areas.
The Budget 2020 offers stimulus and some progressive directions to the affordable housing segment to boost both developers as well as homebuyers’ sentiment and encourage them for the revival of the housing sector. The extension of tax benefit to both developers of affordable housing as well as home buyers by one year is a step in the right direction and will encourage more project launches and consumption in the segment.
Therefore, continuing with its commitment to give thrust to the real estate sector, the government has presented a progressive budget in the right direction and touched upon some very important aspects of the realty sector. The budget 2020 reflects the fact of the government’s thrust on affordable housing and alternative segments within real estate apart from the personal tax relief to revive the sluggish housing sector.
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.