Budget 2022: Govt needs to focus on infra creation, affordable housing

After over a decade, the real estate sector is witnessing signs of revival despite the disruptions of the ongoing pandemic. Historic low-interest housing rates and support from various state governments on cuts in stamp duty rates have further aided the demand in the year. 

The industry wants the government to aid the sector further. It is the second-largest sector in employment generation after agriculture and the third-largest contributor to GDP. The sector can address unemployment issues and catalyse consumption in the economy right from the grassroots levels.  

If the sector has to sustain the existing demand, the government needs to rationalise taxes further and tweak specific provisions. 

Also Read: Budget Expectations: Real estate sector seeks relaxation in taxes  

Affordable housing 

Currently, affordable housing is defined as a residential unit of 60 sq. meters of carpet area in Metro cities, a residential unit of 90 sq meters of carpet area in non-metro cities and the stamp duty value of these residential units in the project should not exceed Rs 45 lakh.  

Presently the price for carpet areas in 80% of the non-metro cities is less than Rs 5,000 per sq ft. If we consider a price of Rs 5,000 per sq ft. for a 90 sq meters carpet area, the unit's selling price will be Rs 48.43 lakh, and this will be ineligible. 

Similarly, in metros in the peripheral areas, the carpet area's price is less than Rs 7,500 per sq ft. If we consider a price of Rs 7,500 per sq ft. for 60 sq meters of carpet area, the price works out to Rs 48.43, which is beyond the threshold of Rs 45 lakh. 

In view of this, it is proposed that the area be increased from 90 sq meters to 120 sq meters in non-metro cities and 60 sq meters to 90 sq meters in metro cities and correspondingly the stamp duty value limit of such units should be raised to Rs 75 lakh. So, by increasing the area and value, both buyers and developers stand to benefit. 

Increase in limit of interest rate deduction 

The government should consider increasing the interest deduction; homebuyers lose the benefit of interest claim, which exceeds the limit of Rs 200,000, as the actual payment of interest is much higher. Increasing this to about Rs 500,000 will encourage the home buyers to invest in real estate and spur demand for housing. 

Promoting rental housing  

Presently income tax is levied on individuals and institutions that purchase residential units and give them on rent. The rental income earned by both is taxable. The government should consider exempting 100% of the rental income up to Rs 20 lakh per annum from the payment of income tax under normal and special provisions (MAT) as applicable. This will promote rental housing in the country. 

Also Read: Budget 2022: What real estate sector, homebuyers expect from FM Sitharaman

Long-term Capital Gains  

Presently long-term capital gains on capital assets are taxed at 20%, and the holding period for such eligibility is more than 24 months in case of immovable property (being land or building or both). The tax rate should be reduced to 10% and the holding period to 12 months, this will encourage investments, and the arbitrage between financial assets and real assets will be reduced. 

Tax paid on notional rent of property held  

Provisions under Section 23(5) to charge tax on notional rent on a property should be removed as this is resulting in double taxation. Presently the inventory held as stock-in-trade by the developer which is not actually let is being taxed under the head income from house property on notional basis and then upon sale of such units the gains are taxed under the head profit from gains from business. In no other industry is unsold inventory taxed on notional basis, and this additional tax is a burden for the business. 

Relaxation in certain provisions in REITs 

The idea of REIT/InvIT is to create liquidity and encourage small savings into real estate and infrastructure. Presently, the REIT units need to be held for 36 months to make them eligible for long-term capital and lower interest rates. The holding period can be reduced to 12 months as in the case of listed shares to qualify for long term capital assets. 

An expansionary budget focusing on infrastructure creation, affordable housing, job creation can kickstart consumption in the economy and drive economic growth. This can set the momentum for India to become a $ 5 trillion economy.  

(The author is Group Chief Financial Officer, DLF Limited.)