Give total tax deduction on home loans, offer sops for EWS developers

For one, there is a need to allow homebuyers to get complete tax deduction for the amount they are spending on their EMI, if it is their single home.

Gaurav Pandey        Last Updated: February 25, 2015  | 11:19 IST

Gaurav Pandey
The expectations on the upcoming Budget among the real estate fraternity could be defined on three broad contours, which if done, could indeed make it a defining Budget.

The first contour defines the importance of economic growth. No sector can grow, unless core growth in the economy is stimulated. Economic growth is a function of growth in savings, investment and consumption. Therefore, if the Budget can introduce a radical change in the way tax rebates are ascertained, there could actually be structural growth coming back into the economy.

For one, there is a need to allow homebuyers to get complete tax deduction for the amount they are spending on their EMI, if it is their single home. This would mean that from the taxable income, the entire interest and principal repayment done by homebuyers would be reduced. This would lead to better 'net' affordability for a taxpayer, especially at a time when inflationary pressures have made housing prices testing on the buyer's income levels.

Furthermore, it would generate higher construction activity, which is mapped by non-speculative demand, leading to higher tax collections (read service tax, stamp duty etc). Eventually, the core objective of having a house for all, especially for middle to upper-middle income class, could become closer to reality.

The second thing to stimulate the investment cycle, from a real estate perspective, could be introduction of an effective capital structure to build affordable houses. This would mean that the 'capital innovation' could stimulate a channel of funds that could create truly affordable houses. To ensure that such a structure isn't speculative, restrictions on pricing, sizes etc. can be done to ensure more houses are built at cheaper costs for lower-middle income class. Also, if a specific lending window for buying such houses is created, say, under the National Housing Bank, at lower than repo rates, it would be a defining moment for the lower-middle income class to own houses.

The third thing could be introduction of specific tax incentives and holidays, if EWS (economically weaker section) is created beyond the existing regulatory requirements. There is an urgent need for all of us to work towards actualising the vision set by the prime minister - housing for all by 2022. This cannot be achieved if the EWS don't have houses. Introducing tax holidays and incentives is one way to attract developers to build houses at their costs. The second could be that specific states can be incentivised by the Centre to provide significantly higher Floor Area Ratio (FAR) if developers commit to a threshold of EWS to be built in a defined time frame. This would mean that if the Centre gives resources to states which are mapped to performance of states towards introducing new urban laws and relaxations that lead to creation of EWS houses without a state burden, it could work a paradigm shift towards achieving housing for all. This path-breaking idea would require determination and involvement of experts to frame an attractive policy and may be the Budget could set the tone for this.

The second set of contour of expectations is to address the core challenge of regenerating investment cycle in the entire economy. For this, one low hanging fruit is taking back the Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) implications on SEZs. This is also being championed by the commerce ministry and if done, this could lead to the 'Make in India' campaign becoming ground reality within the next three years. With exports and growth struggling, re-stating an earlier promise could be both confidence-inspiring as well as depict real action and proof of intent of the government, which would allow investors to deploy more capital on manufacturing and services in such SEZs leading to regeneration of investment cycle and economic growth.

The third contour consists of more peripheral set of expectations. They range from specific tax incentives on Real Estate Investment Trusts (REITs) to the first steps and policy stance on single window clearances for faster execution of projects etc. These could be enablers if done with the right framework in mind.

Fiscal policy is a critical dimension that depicts a policy stance, something that has been less significant in the last few years. Given the faith in the current government, it isn't incorrect to hope, expect and wish for real change.

The author is CEO, Burman GSC

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