The real estate sector is a major contributor to the Indian economy, supporting innumerable ancillary industries and providing employment to millions directly and indirectly. In the past couple of years, the industry has witnessed multiple internal, restructuring policies and events such as demonetization, GST and RERA which are aimed at bringing transparency and accountability in the system. To add to the repercussions of these policies in the short term, the industry has been encircled with external risks such as the NBFC crisis, non-performing assets, etc.
However, one must admit that a few changes introduced this year are certainly great news for the sector. Some of them are listed below:
- With the roll-over of Capital Gains under Sec 54 from the current investment in ‘One residential property’ to ‘Two residential properties’ for capital gains up to INR 2 crores, this sector should find liquidity in high value transactions and the housing sector, as a means of re-investment
- In addition to the above, with the Tax Rebate on individual tax payers up to an income of Rs. 5 lacs per year, there will definitely be an increase in the buying powers of consumers left with more disposable income. This combined with extension of the Affordable Housing, section 80IB, “Housing for all by 2022” will provide that momentum to the real estate sector.
- The exemption of Income Tax on notional rent on the second self-occupied House Property will certainly help families elevate their lifestyle
- The Budget, also provides for the extension of exemption of Income Tax on notional rent on unsold inventory belonging to developers, from One year to Two years. This will provide a huge relief to developers and will help ease them of the selling pressure. This will also provide stature for preparation of Grade A income generating properties for the REIT’s
- Increase in TDS on rental income up from INR 1,80,000 as per 2018 to INR 2,40,000 in this years’ budget is also considered a good move to enable revive this sector.
However, the industry was anticipating the government to give thrust to certain initiatives, which the Budget missed. For example, the government to achieve their objective of 'Housing for all by 2022' under 80C, the limit for principal repayment could have been increased from the current INR 1.5 lacs, especially for affordable housing or principal repayments should be a separate limit outside Sec 80C.
The Housing loan interest paid under section 24(b) which had capped the set-off of house property loss against any other income at INR 2 lacs in a financial year, could have been amended/cap removed, to sooth taxpayers who may already be facing financial struggles in building a single home. It would allow a higher tax benefit to those taxpayers who are building their house (with a home loan) for renting out in comparison to those who are building it (also with a home loan) for their own residence.
The government also needs to undertake reforms to provide an industry status to real estate which will reduce the cost of financing and increase the efficiency in delivery timelines. Leniency on the Income tax payable on buying/selling of immovable property below the reckoner value under Section 50C, 43CA and 56(2)(vii) which leads to double taxation on the difference in stamp duty value and transfer price, would have been extremely helpful in the current industry cycle, where the inventory is not moving, and reckoner levels have been increasing unjustifiably.
Overall, the Budget 2019 is expected to have a positive impact on the economy and we hope that it will also enable some revival of the real estate sector.