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Union Budget 2019: What Will Be The Next Move After RERA, NCLT

A re-look is necessary to restore input tax credit

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I am not writing to canvass for the battered real estate sector. I am also not focusing on this beleaguered sector's tale of woes. 

Instead, I am writing for the multitude of middle-class buyers who have booked dream homes in stalled projects across the country, making rounds of RERA authority and NCLT with no relief in sight. I am writing for the housing loans they have taken and the burden of repayment while they continue to pay rent as their dream home is not ready.

I am writing for the banks and NBFCs which have huge exposure to these projects, staring at defaults and hair-cuts. 

I am writing for the 9% employment generated by construction sector, besides indirect multiplier effect. I am writing for the industrial activity right from manufacturers of bricks to aluminum panels, which solely depends upon this sector. 

I am writing for the slum dwellers languishing in transit while the developers are not able to even pay rent. I am writing for tenants precariously living in dilapidated rented ceased buildings, awaiting redevelopment. Similar is the predicament of the tenants of the MHADA buildings.

It boils down to one conclusion. The real estate sector needs help to give soccour to the above sufferers. I have a few thoughts.

Firstly, the liquidity for the sector has to improve. NBFC sector which had practically replaced the banks in financing the real estate sector is hit hard by liquidity crisis. But for remedial steps, massive defaults are imminent. The budget needs to provide for a contingency fund of say Rs 10,000 cr for starters, only for stalled projects or for last mile funding. Besides, appropriate noises shall greatly help to address the liquidity and stability issues of NBFCs. 

Secondly, the slum redevelopment is a well acclaimed socio-economic activity, as much socially relevant as PMAY. It generates housing for the slum dwellers by cross subsidization. Housing in general, and this sub-sector in particular merits classification as urban infrastructure. 

Thirdly, the home buyers deserve relief. The limit for interest deduction for self-occupied and rented out houses alike needs to be raised by a significant margin. The non-occupancy notional income liable to tax too has to go. 

Fourthly, the availability of institutional finance for construction sector needs to be facilitated. All interest subvention schemes of the developers are illusory, deserving blanket ban.  

Fifthly, we need to address the unintended effect of the recent amendments in the GST regime. The rate of GST on under construction residential flats has been lowered to 5%, with still greater relief for affordable sector. These steps shall step up demand. The rationalisation of GST on transfer of development rights, lease and TDR is also appreciable. However, this benefit is not available to the commercial development which too is crucial to propel higher level of economic activity for cities.

Nonetheless, the above concessions to the end buyer have come at a heavy cost via denial of input tax credit, leading to cascading construction costs. The burden shall finally be on the buyer thus neutralising the benefits. Hence, a re-look is necessary to restore input tax credit. Besides, the concessions need to be made generic. Lastly, the abatement for land now fixed at 1/3rd should be linked to ratio of stamp duty valuation of land and constructed premises to provide a level playing field. The ceiling of Rs 45 lakh for affordable housing needs to be fixed separately for metros and non-metros. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Union budget 2019-20

Mukesh Jain

The author is Real Estate and corporate lawyer, Founder of Mukesh Jain & Associates

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