The introduction of the Real Estate Regulatory Act as well as demonetization last year has been extremely disruptive for the real estate sector.
FULL COVERAGE: UNION BUDGET 2017-18
The government has already expressed its vision of housing for all by 2022. If this is to become a reality, they will need to provide tremendous amount of stimulus for the real estate sector so that homes become more affordable and get produced much faster to meet the objectives. For real estate sector, there have been lots of road blocks from stagnated demand to side-effect of demonetisation but companies are hopeful of a populous Budget.
Steps that can be taken by the government include -
1) DIRECT TAX ISSUES
i. To increase deduction limit on interest on loan for self-occupied house property
In metropolitan and urban areas, construction is generally undertaken by builders and developers where high-rise towers and mega projects take 5 to 7 years to complete. This long tenure may deprive assesses of higher deduction for reasons beyond their control. Condition of completion of construction within 5 years from the year of borrowing can be done away with. In case of self-occupied property, the limit for deduction of interest on housing loan is proposed to be increased from Rs.2Lakh to Rs.5Lakh.
FULL COVERAGE: RAILWAY BUDGET 2017-18
ii. House Rent Allowance-
Salaried persons get house rent allowance (HRA) as a component of their total salary, and can therefore claim a deduction. the limit for maximum deduction of Rs 2,000 a month under Section 80GG should be increased.
iii. Chap VI-A Deductions-
The government should increase the tax deduction limit for housing loans, especially for buyers in metropolitan cities. The current limit of Rs. 2 lakh is insignificant, given the ticket sizes in cities like Mumbai where most houses are priced at Rs. 1 crore and above.
Also, tax concessions on house insurance premiums could be introduced to encourage end-users to insure their homes.
The demand is expected to raise the ceiling for claiming deduction under Section 80C to Rs 5 lakh.
It is expected that rate of interest for home loans be further reduced by 0.5%.
Additional deduction of Rs 50,000 u/s 80EE of Income Tax Act for first home buyers: It is proposed to incentivise first-home buyers availing home loans, by providing additional deduction in respect of interest on loan taken for residential house property from any financial institution up to Rs. 50,000. This incentive is proposed to be extended to a house property of a value less than fifty lakhs rupees in respect of which a loan of an amount not exceeding thirty five lakh rupees has been sanctioned during the period from the 1st day of April, 2016 to the 31stday of March, 2017.
iv. To encourage the supply of rental housing, increase the standard deduction available for rental income.
v. Widen the scope of the tax free status for projects which currently require 90% of the project potential to be developed within 3 years. This is a tremendous deterrent for large-scale projects as it is virtually impossible to complete these projects within 3 years.
vi. To encourage people to acquire the existing inventory available in the market, allow for an increased deduction of an extra 100% of the interest payment made by the flat purchases to the financial institutions for a 5 year period. This will drive down the effective rate of interest (including taxes) for the flat purchasers. The ensuing increase in real estate activity generating income to the government from other sources, will more than compensate for the reduction in income on account of the increased deduction.. A simple measure for this could be limiting total cash payments to say 1% of the total expenses of a company in each month. This will force all payments for all businesses to be made by cheque.
2) INDIRECT TAXES
"Currently, homebuyers need to pay service tax, VAT as well as stamp duty when purchasing flats. The Government should ensure the quick passage of Goods and Service Tax which will replace numerous taxes and help the consumers. The budget should also do away with the multiple taxes involved in the purchase of residential property. As of now, home purchasers are required to pay service tax (ST) and value-added tax (VAT) on top of stamp duty and registration charges. Goods and Service Tax (GST) should be introduced in place of these taxes wherein the overall impact of indirect taxes reduces. Expected Fall in Stamp Duty until GST is introduced-High stamp duty is largely responsible for increased use of cash in real estate transactions. The central government is likely to lead by example with the Union Territories where the stamp duty rates are likely to be brought down sharply to 4 percent or so.
3) INDUSTRY STATUS
The Indian real estate sector remained in headlines due to many policy level changes in 2016. RERA Act 2016), Benami Transaction Prohibition (Amendment) Act 2016, amendments in REITs regulations, GST and Demonetization, were the ones that were considered to have the potential to change the way real estate sector work.
The National Real Estate Development Council (Naredco) has demanded that infrastructure status be given to the real estate sector and taxation-related incentives be increased to enhance purchasing power of home buyers.
For the sake of convenience and uniformity in law, built-up area mentioned in the Income Tax Act should be replaced by the carpet area as defined in the Real Estate (Regulation and Development) Act 2016. Also under the Pradhan Mantri Awas Yojana scheme, builders who construct 60 sq m housing units get an exemption under Section 80 I B of the Income Tax Act that uses the word built-up area and not carpet area.