BUDGET 2019 for REAL ESTATE SECTOR

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Budget 2019 is aimed at providing increased tax exemptions to the middle class home buyers which means more money at their disposal that may encourage them to consider investing in real estate and seeks to provide relief to real estate builders by extending some of the existing benefits.

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Paramjeet Singh Chandhok
(Co-author is a Senior Finance Executive at AzeaGAIA Real Estate Firm, promoted by Singapore-based Asset Investment Companies)

According to Piyush Goyal, “We are poised to become a five trillion dollar economy in the next five years and aspire to become a ten trillion dollar economy in the next eight years thereafter.”

Here is what real estate gained in budget 2019:

1. Empowering middle class to afford more houses

For making more homes available under affordable housing, the benefits under Section 80-IBA of the Income Tax Act is being extended for one more year, i.e. to the housing projects approved till 31st March, 2020.

2. No tax on rent from second self-occupied homes

For giving impetus to the real estate sector, FM proposed to extend the period of exemption from levy of tax on notional rent, on unsold inventories, from one year to two years, from the end of the year in which the project is completed

Currently, income tax on notional rent is payable if one has more than one self-occupied house. Considering the difficulty of the middle class having to maintain families at two locations on account of their job, children’s education, care of parents etc, Goyal proposed to exempt levy of income tax on notional rent on a second self-occupied house.

However, if a person has three house houses, out of which he/she lives in one and the other two are not given on rent, then the third one will be considered as deemed to be let out and taxed accordingly.

3. Capital gains up to Rs 2 crore can be used to buy two houses

The benefit of rollover of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two residential houses for a tax payer having capital gains up to Rs 2 crore. This benefit can be availed once in a life time. It is a tremendous step by the government that will boost sales in both primary and secondary markets.

4. Reduction in GST Rates expected soon

 The government also reiterated its intent to further rationalise GST rates on purchase of residential homes by referring the decision to a group of ministers for recommendations.

5. Gift to prospective homebuyers and those who own or wish to more than one property

But the over 3 lakh homebuyers stuck with unfinished projects for over a decade are an unhappy lot. They have expressed disappointment over the government not provisioning for a stressed asset fund to complete the projects and have said that if their demand is not met, they would exert the non-of-the above (NOTA) option during elections.

6. Gift for real estate developers to launch affordable housing projects

The tax on notional rental income on unsold inventory will not apply for two years from completion, as against the exemption of one year earlier. Moreover, the 100 percent tax exemption (benefits under Section 80-IBA) on profits from affordable housing projects will now be available for projects registered till March 2020.

The extension of exemption of tax on notional rent on unsold inventories for two years is also expected to help builders’ cash flows.

7. No tax be deducted on house rents up to Rs 2.4 lakh

The TDS threshold for deduction of tax on rent is proposed to be increased from Rs 1,80,000 to Rs 2,40,000 for providing relief to small taxpayers. This can attract more investors to buy second homes for earning rental income.

8. No income tax upto Rs 5 Lakh

Individual taxpayers having taxable annual income up to Rs 5 lakh will get full tax rebate and therefore will not be required to pay any income tax.

9. Gratuity limit raised from Rs 10 lakh to Rs 30 lakh will create possibilities for more investment options.

10. Modi Government missed some important links to facilitate demand

• The Budget did not address the issue of clearing the NBFC deadlock which continues to hold the real estate sector to ransom. There was no announcement concerning creation of a stressed-asset fund to bail out distressed homebuyers. The government should also take steps to create a stressed asset fund for home buyers to deal with the issue of stalled and incomplete projects.

• The builder community would have preferred creation of a single window clearance mechanism for all real estate projects akin to the one extended to the movie industry.

Conclusion

Benefits still have a greater weightage and these steps along with the increased standard deduction limit will in some way translate to an improved affordability for house purchase, thus aiding demand for the sector.

A rough calculation on the new standard deduction rates and other direct tax benefits give us a figure of an annual taxation exemption of almost Rs 7- 9 lakh per annum. It is believed that a fair part of the savings from this could be channelised towards real estate.

Additionally, the provision of increasing the number of self-occupied properties from one house earlier to two houses now will augment the house purchase decision for people supporting families in another city/towns.