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Real estate could recover with Industry focussed tax benefits

Sudeep Saha     January 31, 2017

Sudeep Saha, Managing Director at Avant Group
A major task of reshaping the skylines of a city and adding some structure to the chaos is done by mid-level realtors. For instance slum redevelopment enables increasing the hygiene levels within a city at the very least.  

To this end, there currently is an opportunity for real estate players and the government to benefit from slum redevelopment programs.

Additional deductions/tax sops to the Builders/ Developers who are playing an important role in developing the Slum areas and changing the lifestyle of the slum dwellers will add value to both society as well as developers seeking to change the landscaping of cities.

For the industry
Ushering in of RERA (Real Estate Regulation and Development Act) Bill has intensified the situation in recent months and real estate players are looking for sops in the coming budget to revive the sector.

Clarity on GST
Further, the government should clear its view with respect to the applicability of Goods and Services Tax (GST) rate for the sector and it should be capped at a lower tax rate of 12 percent and credit for input taxes should be allowed if the composition scheme has already been availed by the developers. This will reduce the cost of apartments and improve affordability for property buyers.

Also, clarity is required as regards the applicability of the abatement scheme, whereby developers and buyers get service tax benefits the effective tax rate is presently 4.5 per cent after abatement.

REIT tax
A simplified tax structure for REITs (Real Estate Investment Trusts) with removal of the multiple taxes currently applicable will enable a lot of ease. Further clarity on issues of dividend distribution tax and waiver of stamp duty, removal of long-term capital gain taxes for sponsors of REITs are also required.

The approval process by giving single-window clearance for projects should be implemented. Like the sector should be given 'industry' status which, in turn, could improve access to finance as well as reduce financing costs, while also giving them options to raise ECBs.

While these are industry level requisites to enable a better off-take in real estate, at the consumer level as well, the government will need to take conscious steps. More so for the middle income group which builds one or two assets in a life time.

Sales of residential flats have slowed down over the last three years leading to significant inventory pile-up. Considering that this is a blocked capital, it places many players within this field at a significant challenge level and imposes needless capital blockades, inhibiting further growth of the industry per se.

Demonetisation has reduced the buoyant spirit of the consumers. Multiple level taxation with reducing liquidity has only further added to the woes. The need of the hour is tax-based incentives that could encourage spending on housing by the mid income group. We also expect that the annual upper limit of Rs. 2,00,000 currently allowed as deduction from income for the interest payments on home loans made during the year should be raised to Rs. 3,00,000.

The basic I-T exemption limit should be increased to Rs. 5 lakh per year. Additional attempts to infuse liquidity in the middle income segments of society will enable a better off-take in real estate in the immediate term.

Last year, for the first time, home buyers were given an additional tax deduction of Rs. 50,000 on interest payment (in addition to Rs. 2,00,000) for house property worth up to Rs. 50 lakh and with a loan amount up to Rs. 35 lakh. However it has benefited only home buyers in the tier-II and tier-III cities and at an upper limit of Rs. 50 lakh, many urban houses were ineligible for such tax limit,. There is a proposal to usher in similar benefit for first-time buyers of houses in the metros with a higher limit for house value.

On the whole, the real estate industry will need some enables - which would be critical to ensure that buoyancy of the market continues on an upward incline.

Sudeep Saha, Managing Director at Avant Group


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