Measures like an increase in limit under Sec 80C, reintroduction of long term infrastructure bond and tax free bonds by infrastructure companies will go a long way in providing the boost.
In the last couple of years, the real estate sector has been facing some rough weather, specially the residential segment. However, off late, we have been witnessing a few positive trends in the demand side of the market. To keep the momentum alive and to further support the market dynamics, the Union Budget is an effective tool that can be used by the Government to bring in more demand side interventions to incentivize the homebuyers who are extremely crucial for the revival of the sector.
Extension of the Sunset Clause of Special Economic Zones
The government had introduced a sunset clause for SEZs in 2016. According to the clause, only an SEZ unit that commences operations on or before March 31, 2020, shall be eligible for an income tax holiday. Considering the challenges faced by the real estate sector in the last couple of years, there is a need for the government to extend the date and provide the required relief to SEZ units and developers.
Reduction in holding period of REITs for long-term capital gains
The reduction in holding period from three years to one year while calculating long-term capital gains from REITs will provide a level playing field with competing equity instruments.
Increase in deduction of interest on home loans u/s 24
An increase in the deduction of interest on home loans for self-occupation from the existing INR 2 lakh to INR 3 lakh will mainly benefit buyers in the lower and mid-income category. This is expected to incentivise homebuyers in a scenario of weak demand.
Restriction on setting off loss from house property against other heads of income at INR 2 lakh to be removed
The Finance Bill, 2017 introduced provisions to restrict the set off of loss from house property against other heads of income to INR 2 lakh during the year. The balance loss, if any, can be carried forward and set off against income from house property in the subsequent 8 years. The removal of this restriction will enable the individual to claim the entire interest on his let out property without any limit. This is expected to spur higher investments in the housing sector.
Deduction of pre-EMI interest in the same year
Currently, pre-EMI interest (interest paid during the construction period) can be availed as a deduction only after the construction of the building is complete in 5 equal annual installments. However, homebuyers have been adversely affected due to inordinate construction delays. In order to provide timely relief to homebuyers, it is recommended to provide for the deduction in the same year of interest payment.
Extension of benefit u/s 80EEA to avail additional INR 150,000 interest deduction on home loans for first time home buyers
This benefit (currently available for home loans sanctioned between April 1, 2019 and March 31, 2020), should be extended to continue the benefits for the first time home buyers.
Time extension to claim 100% tax deduction on profits from affordable housing projects beyond March 2020 u/s 80IBA
Budget 2019 had extended the timeline for approval of such projects under Section 80IBA on or before 31st March 2020. An extension in the dateline will ensure continued interest of developers to construct affordable housing projects and help in achieving the “Housing for All” objective of the government.
Change in income tax slabs in line with Direct Tax Code
The ‘Direct Tax Code’ which will replace the existing Income Tax Act, 1961 aims to widen the tax base and rationalise the tax rates (individuals and corporates) to make it equitable and at par with international standards This will help in simplification of direct tax laws in India by adopting global best practices. It will thus aid in the creation of a more ‘progressive’ tax structure.
Separate provision for deduction of ‘principal repayment’ on home loans
A separate provision allowing deduction of principal repayment (currently forming part of 80C deduction) will provide homebuyers higher tax benefits towards the latter stage of the loan tenure.
Effective implementation of National Infrastructure Plan (NIP)
The government has unveiled INR 102 lakh crore NIP for the period 2020 to 2024 to support the envisioned targeted GDP of USD 5 trillion by 2024-25. It will be imperative to lay down a detailed plan phasing out the investments in terms of sectoral utilisation and monitoring of the planned outlay. The financing mechanism of this programme is crucial for investment led growth. Its implementation will depend upon adequate long-term provision of funds and the budget should address these areas comprehensively.
Expedite implementation of the Alternative Investment Fund (AIF) for last mile funding of stressed projects
The INR 25,000 crore fund set up to provide relief to developers saddled with stalled projects owing to last mile funding issues will play a critical role in rebuilding homebuyers’ confidence. It will be essential to lay down clear guidelines for faster project appraisals and fund deployment to achieve the desired outcomes.
Single Window Clearance Mechanism
The sector has long been demanding a single window clearance mechanism in place.
This will expedite the approval process eliminating the inordinate delays that are faced by developers during the commencement of projects until its completion. These eventually impact the cost of borrowing and result in cost and time overruns. As a result, the burden of delays is passed on to customers in the form of price escalation. Hence, a single window clearance mechanism is desirable.
[Ramesh Nair is the CEO & Country Head at JLL India. All views, opinions and expressions are personal and limited to the author.]
Also Read: Budget 2020: Real Estate wishlist