Real Estate Sector’s Expectation From Budget 2022

By Admin |
Jan 29, 2022 |
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Real Estate Sector’s Expectation From Budget 2022

The real estate sector, which accounts for a significant portion of India’s GDP, has suffered a major setback in the course of the covid pandemic, like any other sector. Initially, the residential real estate segment was hit hard but has shown a green shot of recovery in recent quarters. The commercial sector, offices, and malls have shown signs of tension over the past month as the third wave began in a blockade in some particular states. With this in mind, to ensure that the real estate sector continues to show sustainable growth, the central government may introduce tax law changes to its next budget to promote such growth which is expected.

From the perspective of individual taxpayers, the tax deduction limit for interest on loans owned by taxpayers to buy or build their own homes from INR 2 lakh to a minimum of INR 5 lakh or completely removing it will be greatly appreciated. The INR 2 lakh restrictions that apply to offset the loss of house ownership to other sources of income are detrimental to both developers and consumers as they reduce the liquidity in the hands of taxpayers which has been proven in some cases. Despite the recent surge in sales, significant inventories remain, and such remedies are expected to provide taxpayers with more liquidity and encourage investment in real estate.

Investment in rental housing and affordable housing should be encouraged even more, in order to meet the vision of “Housing for all” of the Government. In terms of the tax holiday for affordable housing, the timeline for completing qualified affordable housing projects should be extended to seven years, rather than the current five years, and also the stamp duty value maximum of INR 45 lakh for claiming the tax holiday on housing projects should be lifted.

A 10-year tax holiday could be implemented in the rental housing sector to boost the rate of return on rental property and attract investments in the sector. Alternatively, the government may impose a significantly lower flat rate on rental revenue than is currently the case. Furthermore, the standard deduction for rental housing income might be raised from 30 percent to 50 percent.

Three REITs have successfully entered the market in the last two years, according to the industry. We propose several improvements in order to give the REIT business even more of a boost. Changes could include matching the holding period for business trust units for long-term capital gains treatment to those of listed shares.

Aside from that, the government might provide a tax exemption for sponsors on the transfer of capital assets/interest in LLPs or firms, as well as other securities such as debentures, in return for business trust units, similar to the exemption already offered on the transfer of SPV shares.

We further suggest that tax withholding provisions be rationalised, that provisions (to business trusts) for denial of carrying forward losses on change in shareholding be exempted from the application, and that intercompany transfers of cash be permitted without the tax for firms held by business trusts.

Removal of provision around the taxation of notional income where inventory is unsold/ remains vacant for a period of two years from the end of the financial year in which the certificate of completion of construction of the property is issued are some other changes that could help increase liquidity in the sector and provide relief to the real estate sector.

The government may also explore by allowing at least a 25% departure from the circular rate for property taxes, as well as providing clarification on the timing of capital gains taxation in the hands of landowners (other than individuals and HUFs) under a joint development agreement.

Deferring the point of taxing on account of the conversion of a stock-in-trade asset to a capital asset from the current trigger at the time of conversion to the tax outflow trigger at the time of real sale of the asset might also improve stakeholder sentiment.

The real estate sector also expects that the above reliefs will act as a stimulus to accelerate the recent recovery in the sector, assisting in the creation of sustainable growth and attracting increased investments in the sector, all of which will contribute to the overall stimulation of the economy.



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