Union Budget 2022-23: Bringing larger houses within the ambit of ‘affordable housing’ will provide more homebuyers access to these benefits
The real estate sector in India is a significant contributor to Gross Domestic Product (GDP) at 6-7 percent and is likely to reach 13 percent by 2025. The sector is currently anticipating tax relaxations and other favourable measures in Budget 2022-23.
The key expectations from the Budget are:
Industry status to real estate sector
The government can use this Budget to grant industry status to the real estate industry, a long pending demand. Receiving infrastructure status would help reduce the cost of borrowing for developers and also allow them to tap new sources of funding.
Redefine ‘affordable housing’
The present affordable housing limits must be enhanced in metros and non-metros so that buyers can avail tax deduction of Rs 1.5 lakh on interest on housing loans availed to buy affordable housing under section 80 EEA of the Income Tax Act, and lower GST rates. Bringing larger houses within the ambit of the definition of ‘affordable housing’ will provide additional homebuyers access to these benefits and have a positive impact on the market trend. In this context, the industry wants to redefine the term ‘affordable housing’ based on ticket size instead of an area of the unit.
Aid in demand creation
For facilitating the robust economic revival of the industry post-economic aftermath of the pandemic, demand creation should be ensured by introducing tax sops for homebuyers especially since most salaried people buy a home by taking a housing loan and use their income to pay such loan.
Key relaxations for Government’s consideration are:
- Increase in the deduction limit for interest on home loans to Rs 10 lakhs from the current Rs 2 lakhs
- Deduction of the principal amount of housing loan repayment should be allowed as a deduction separately and should not be clubbed with other deductions under section 80C of the Income Tax Act. Alternatively, the limit under section 80C should be increased to Rs 3 lakh.
Ready reckoner/circle rate valuation
The difference of more than 10 percent between the ready reckoner/circle rate and agreement value of property attracts tax penalties under Section 43CA of the Income Tax Act.
- While ready reckoner/circle rates are determined by the government; the actual sale price is dependent on numerous factors like location, amenities, furnished or bare-shell property, bulk or single property transaction, competition; the price is inclusive or exclusive of taxes and prevailing market rates.
- It is submitted that a certificate from a chartered engineer instead of a government valuer is accepted in case of differential up to 20 percent of the ready reckoner/circle rate.
Reduction in holding period of immovable property
To promote the real estate sector and to make it more attractive for investment, the holding period of immovable property for long-term capital gains computation be reduced to a 12-month period from the current 36 months.
Registration costs should be allowed as ITC
Registration costs for the purchase of land are a significant amount for which the developers do not get any benefit. Since developers are unable to claim the input tax credit (ITC), this is a direct cost for them which ultimately raises the cost of ownership for home buyers. The government should introduce a policy permitting registration costs for the purchase of land as an input tax credit.
Exemption of GST on transfer of leasehold rights from local authorities
The leasehold rights given by local authorities are for periods ranging from 60 to 99 years. Transfer of such leasehold rights are in effect transfer of land and/or building itself as the consideration payable for such transfers is equal to the market value of the property. The government should therefore consider issuing a circular clarifying that transfer of lease rights from local authorities (like MIDC, CIDCO MMRDA, GIDC, NOIDA) will be exempt from GST.
Streamline approval process
The Centre should consider bringing about a model code that would simplify the approval process for real estate projects. Currently, developers have to go through innumerable regulations for securing necessary permissions, often overlapping multiple authorities and jurisdictions.
To improve the whole process, the government could bring about a model set of regulations, including set timelines for granting or rejecting applications, an appeal system, and nodal officer as well as guidelines on premiums and development charges, etc. The Central government should encourage states to adopt this model code as it could significantly streamline the approval process and result in homogeneity on a pan-India level.
The introduction of these measures will support sustained progress in the real estate sector.
The author is Partner, Shardul Amarchand Mangaldas & Co. Views expressed are personal.