Real(ty) Wish List 2018
Tax incentives for developers and property buyers can go a long way in giving a boost to the housing sector
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Hit by the weak job market, slow GDP growth and disruption caused by the big bang reforms last year, the real estate sector is looking forward to a friendly and favourable Budget. It is looking for measures that may help it tide over the prevailing crisis and hasten a recovery process.
At a time when the real estate sector is in a slump due to weak sales, tax incentives for developers and property buyers can go a long way in giving a boost to the housing sector. Last year, real estate was partially brought under GST. The sector, which attracts 12 per cent GST is, according to developers, over-burdened with a high rate. In the pre-GST era, real estate attracted an average tax of 5.5 per cent (4.5 per cent service tax and one per cent VAT).
As the effective rate of tax under GST is still high, notwithstanding the input credit tax available on the purchase of construction material, there is a demand to lower the GST. It is also hoped that stamp duty, now levied separately by the state governments, will be subsumed in the GST to curb the additional cost burden on buyers.
Sales of under-construction homes have been severely hit because of large-scale delivery defaults by capital-starved property developers. There is therefore, a huge inventory of unsold property. As a measure of relief, realtors are demanding that the tax on notional income for house property held in stock that is scheduled to be levied from April, be deferred.
The Union Ministry for Housing and Urban Affairs had earlier liberalised criteria like the size of the house and income of the home-owners, so that the benefits of subsidy under the Pradhan Mantri Awas Yojana (PMAY) restricted to the affordable housing segment, be extended to the MIG (middle income group) category as well. As a boost for the MIG housing segment, the housing sector wishes for the abolishing of the one per cent TDS that a transferee of immovable property is liable to deduct of the value of consideration paid to the transferer.
As the government’s incentivised policy favours first-time home buyers, it is expected that deduction available on interest payment will be made valid from the year in which capital was borrowed and be to the extent of the full interest paid, at least for one house. There is also a case for raising the limit for tax deduction from Rs 2 lakh to Rs 3 lakh for ownership of a house and for abolishing the five-year period for completion of the project from the year of borrowing.
Revising the ceiling of Rs 1.5 lakh under Section 80C to Rs 2.5 lakh, along with earmarking Rs 1 lakh of it for payment of the principal amount taken as loan for house buying, is part of the real estate sector’s Budget agenda. The sector also calls for incentives for home buyers in the way of an income tax benefit for premium paid towards home insurance.
Since one of the biggest reasons for the current woes of the real estate sector, particularly residential real estate, is the funds shortage, the Budget is expected to address this issue. There is a demand that banks’ allocation for housing for the affordable segment be raised by an additional two per cent over the existing limit of three per cent and that the allocation for the Dedicated Affordable Housing Fund be increased.
Budget incentives that could make way for cheaper housing finance include expanding the scope of the ECB beyond affordable housing to include the MIG segment and scaling down the holding period of business units that qualify as long-term capital assets with regard to REITs & InvITs from three years to one year. These measures will have a positive impact on property prices, boost home sales and contribute to speedy revival of the real estate sector.
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