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Budget 2020 has come up with several surprises for the real estate sector, as well as the common man. There are several demands, which the realty sector was expecting to get addressed in the budget 2020, but only a few got the attention of the finance minister. Let us look at some of the key announcements made in the budget and its impact on the realty sector.
What are the new income tax slabs proposed in Budget 2020?
The government has proposed a dual tax slab option to the individual tax payers. The tax payers can select between the new and the existing tax slab option. The FM has proposed to abolish 70 types of tax exemptions out of 100.
The new tax slab format is as mentioned below:
Farshid Cooper, MD, Spenta Corporation says, “The most telling thing to come out of Budget 2020 is the tax relief to individuals. The amended tax slabs will ensure more disposable income in the hands of the middle class. This could lead to reviving the consumption cycle in the realty sector and kick-starting the economy. Further, with additional savings, individual investments in housing, especially affordable housing could see an uptick in the near future.”
Some experts have contrary views as they believe that the non-applicability of the deduction on housing loans under the new optional individual tax structure, can act as a significant deterrent for those contemplating availing of housing loans.
The guarantee scheme for NBFCs and HFCs
The liquidity crisis faced by the NBFCs/HFCs in 2019 is still not completely over. The Budget 2020 proposal to further enhance the credit guarantee scheme for NBFCs and HFCs, is expected to provide some respite to market. “The government’s decision to further bolster the guarantee scheme for NBFCs and HFCs and offer subordinate debt to MSMEs, will to a certain extent, help bring liquidity in the market alongside the abolition of DDT,” opines, Kaushal Agarwal, chairman, The Guardians Real Estate Advisory.
Boost to infrastructure in Budget 2020
The finance minister announced several steps to boost the infrastructure growth. Several schemes were announced and huge funds have been allocated for industry and commerce. Rahul Grover-CEO, SECCPL, points out: “This year, the budget has revealed the government’s intentions towards bettering infrastructure. The National Infrastructure Pipeline includes 6,500 projects across the country and finance minister Sitharaman has also announced the allocation of Rs 27,300 crores for industry and commerce in FY21. Along with this, plans for developing strategic national highways have also been announced, which can help bring about developmental changes in the real estate sector as well.”
What were the announcements for affordable housing in Budget 2020?
In the Budget 2019, the government had introduced tax benefit for affordable home buyers under section 80EEA, for deduction up to Rs 1.5 lakhs against interest payment. However, the deadline was March 31, 2020. In the Budget 2020, the FM has announced an extension of the benefit under section 80EEA till March 31, 2021.
“The Union Budget 2020-21 continued the government’s focus on the affordable housing sector, by extending the permitted additional deduction of up to Rs 1.5 lakhs for interest paid on loans borrowed for the purchase of an affordable house valued up to Rs 45 lakhs, by one year, i.e., up to March 31, 2021. Thus, the total tax deduction available on such interest paid stays at Rs 3.5 lakhs for one more year, which is expected to positively impact demand in the affordable housing segment. Moreover, segmental supply is also expected to be favourably impacted by the one-year extension in the tax holiday currently available to developers of affordable housing,” says Shubham Jain, group head and senior vice-president, corporate ratings, ICRA Ltd.
What did the warehousing segment get in Budget 2020?
According to Ramesh Nair CEO and country head, JLL India, “The National Logistics Policy and viability gap fund for development of warehouses, would provide impetus for increasing warehousing supply which is expected to rise from 211 million sq ft in 2019 to 379 million sq ft in 2023. Net absorption of 36 million sq ft in 2019 will get a further boost and single-window clearance will expedite supply, as approval time is expected to reduce by six months.”
Other key announcements in Budget 2020
The FM also announced to set up 5 new smart cities under the PPP model. 100 new airports are proposed across the country. The government has also proposed to enhance the guarantee on the bank FDs from Rs 1 lakhs to Rs 5 lakhs. “Declaration to build 100 airports will be a massive infrastructure initiative to integrate all cities and foster growth. The potential of smaller growth centres can now possibly be exploited better,” says Indranil Basu, director, project management (south) at Colliers International India.
What are the income tax slabs proposed in Budget 2020 for individual tax payers?
The finance minister has proposed two tax slabs for individual tax payers in Budget 2020. Under the existing tax slabs, individual tax payers can avail of tax exemptions, while under the new tax slab, tax payers will have to forego tax exemptions. Tax payers will have the option to choose between the two slabs.
What is the existing tax slab for individual tax payers?
Taxable income slab - Existing rate || Rs 0-2.5 lakhs – Exempt || Rs 2.50-5 lakhs - 5% || Rs 5-7.5 lakhs - 20% || Rs 7.5-10 lakhs - 20% || Rs 10-12.5 lakhs - 30% || Rs 12.5-15 lakhs - 30% || Rs 15 lakhs and above - 30%
What is the new alternative tax slab for individual tax payers in Budget 2020?
Taxable income slab - New rate || Rs 0-2.5 lakhs – Exempt || Rs 2.50-5 lakhs - 5% || Rs 5-7.5 lakhs - 10% || Rs 7.5-10 lakhs - 15% || Rs 10-12.5 lakhs - 20% || Rs 12.5-15 lakhs - 25% || Rs 15 lakhs and above - 30%
What is the deadline for availing of the additional deduction on home loan interest?
The Union Budget 2020-21 has extended the deadline for availing of the additional tax benefit of Rs 1.5 lakhs on interest payment, on the purchase of affordable homes (priced up to Rs 45 lakhs) under section 80EEA, to March 31, 2021.
Budget 2020: What does the Indian real estate sector want from the FM?
We examine the key demands of the real estate sector from finance minister Nirmala Sitharaman’s Union Budget for 2020-21
January 21, 2020: The real estate sector is the top non-farm employment-generator in the country in the post-liberalisation era. While it contributes a significant share to the country’s GDP, it is presently in the midst of a slowdown in growth. With Budget 2020 expected to be announced on February 1, 2020, we list the sector’s demands for its revival and to overcome growth obstacles.
Increase in tax benefits
Satish Magar, president of CREDAI (National), points out that an individual is allowed to avail of an additional deduction of interest on the loan for the acquisition of a first house. However, this deduction is allowed only on loans sanctioned between April 1, 2016 and March 31, 2017, with the loan amount not exceeding Rs 35 lakhs and the property value not exceeding Rs 50 lakhs. Magar suggests the following, to boost demand in the realty sector:
- “The timeline for such loans should be extended to March 31, 2022, in line with the ‘Housing for All by 2022’ mission.
- In the case of individuals, 100% interest on home loan should be allowed, as a deduction for the first home.
- To boost rental housing, 100% interest on home loans should be allowed as a deduction, for the second and third home, provided that except for the self-occupied home, others are rented for a period of nine months during the year.
- The benefit under Section 80IBA should be extended to all affordable housing projects, as long as the size of the residential units satisfy the limits on carpet area at 30 sq metres (for projects located within the cities of Chennai, Delhi, Kolkata or Mumbai) or 60 sq metres (for projects located in any other place).”
Amendment or removal of Sec 43 CA
Magar further adds that Section 43 CA of the Income Tax Act, is a barrier to natural price correction and the stalled project has a cascading effect on home buyers, banks and other stakeholders. Hence, this section needs to be removed or amended, to exempt primary sales or at least allow sales at 30% below the circle rate.
Several real estate players have also demand that the benefit of input tax credit (ITC) be reinstated and GST be charged at 12% along with an allowance for land cost at 33%, at par with the current rate of works contract services for government projects. Stamp duty should be subsumed into the Goods and Services Tax (GST) and the government should consult with states in this direction, they maintain.
Relaxation in stamp duty
According to Niranjan Hiranandani, national president, NAREDCO, “A reduction in stamp duty by 50%, for all real estate transactions registered on or before March 31, 2020, shall induce the fence-sitters to turn into the actual home buyers, thereby, spurring demand and consumption.”
Support for rental housing
Rental housing has often not received proper attention in previous budgets. Tax benefits, easy funding mechanisms, availability of loans at lower interest rates and policies aimed at the growth of rental housing, can boost the segment and play a big role in achieving the vision of ‘Housing for All by 2022’.
“To meet the urban housing requirements, the government should consider promoting the development of an institutional rental market, by providing incentives. The proposed Model Tenancy Law is a step in the right direction. While progress on the draft guidelines is expected, the government also needs to align with changing consumption patterns, as trends like co-living are already gaining ground.
“On an individual basis, higher House Rent Allowance (HRA) or related benefits, can be extended to such rental housing avenues, to help consumers opt for it along with the associated tax benefits. On an institutional basis, fiscal measures like tax breaks/tax holidays to rental housing, will definitely give a fillip to this segment,” explains Shishir Baijal, chairman and managing director, Knight Frank India.
Resolution of the liquidity crisis
Over the past few years, the crisis in the non-banking financial company (NBFC) sector and high non-performing assets (NPAs) of banks, resulted in a liquidity crunch for several realty projects. Thus, many developers either defaulted on their loans, or slowed down the launch of their new projects. To ease this crisis, several developers and organisations are demanding relaxations, such as loan restructuring and a one-time loan roll-over. On the whole, the real estate sector is hoping that the government will unveil reforms for the development of the realty and infrastructure sector. A concrete roadmap for the development of the realty sector, according to the real estate fraternity, will infuse positive sentiment and give direction to sustained growth in the long-term.
Budget 2020: Demands of realty sector
Union Budget 2019: What did the real estate sector gain
July 5, 2019: While the real estate sector had a list of demands, vis-à-vis the Union Budget 2019-20, we look at what the finance minister, Nirmala Sitharaman, managed to give the sector and the demands that went unheeded
Additional tax benefit of Rs 1.5 lakhs for affordable home buyers
In terms of taxes, the government has increased the tax deduction benefit against interest on home loans for affordable housing, with a value of up to Rs 45 lakhs. “Interest deduction up to Rs 3.5 lakhs for affordable housing, as against Rs 2 lakhs earlier, is available for loans taken till March 31, 2020. This is expected to drive sales and bring fence-sitters back into the market, within this financial year,” says Aashish Agarwal, senior director, valuation and advisory services, at Colliers International India. The budget, however, had no mention of subsuming stamp duty within the ambit of the GST.
Resolving NBFCs’ woes will help solve funding crisis in real estate
Several measures were announced for the revival of non-banking financial companies (NBFCs) from the ongoing debt crisis and liquidity crunch. The government announced a one-time, six-month credit guarantee for the purchase of pooled assets, of highly rated NBFCs up to Rs 1 lakh crore. Experts believe that risk-averse banks needed this nudge from the government, to ensure the revival of lending activity and sustained flow of capital, for sustainable and well-performing NBFCs. The government has also allowed the FIIs and FPIs to invest in debt papers of NBFCs. This will give a boost to the much-needed liquidity of NBFCs.
Financial support and initiatives towards skill development
The realty sector expected support on skill development initiatives, as it requires skilled workers to handle technology and new-age tools. The government has announced several measures to widen the skill development program under ‘Pradhan Mantri Kaushal Vikas Yojana’. The government has a vision to train 10 million youth to take up industry oriented training and acquire various skillsets in AI, big data, VR, 3-D printing, etc.
More focus on affordable housing to achieve ‘Housing for All by 2022’
The government aims to achieve its target of ‘Housing for All by 2022’, through the Pradhan Mantri Awas Yojana (PMAY). It has sanctioned over 81 lakh houses under the PMAY-Urban scheme and an additional 1.95 crore houses have been proposed to be provided under the PMAY-Rural. “The government has been consistent, with its efforts towards boosting affordable housing, in the form of granting infrastructure status to this segment in the previous budget and also by providing exemption of Rs 1.5 lakhs in income tax, on home loans under affordable housing in this budget. This is a big move, as it will benefit a broader segment of home buyers and increase demand,” maintains Navin Makhija, managing director of the Wadhwa Group.
Read the important highlights of Union Budget 2019 here.
Reducing corporate tax
There was an expectation from all sectors that the government should reduce the corporate tax. Heeding to this demand, the government has allowed companies having a turnover up to Rs 400 crores, to pay a lower tax of 25%.
Boost to infrastructure development
The government has said that it is committed to boosting infrastructure across the country. In the Union Budget 2019-20, the FM spoke about improving road; suburban railways and Metro connectivity; creating an expansive water management system; investing Rs 100 lakh crores in infrastructure over the next 5 years The finance minister also emphasised on transit-oriented developments (TODs) across the country and proposed a ‘One Nation One Grid’ initiative.
Enacting a Model Tenancy Law
The current rental law is archaic and it hurts the interests of lessor, as well as lessees. The finance minister said that several reforms have been proposed under the Model Tenancy Law, to replace the current rental law. This move is expected to boost rental housing and increase the interest of investors, who are looking for rental income. “Rental housing is a critical piece for the ‘Housing for All’ objective. It is imperative to develop strong rental housing markets, which starts with creating a modern, uniform tenancy law, with corresponding tax incentives. The budget’s focus on this segment, will encourage active engagement by developers and financial institutions, to consider this space as a profitable and investable asset class, as the laws and tax codes develop around it,” explains Amit Goenka, MD and CEO at Nisus Finance.
Demands that were not met in Budget 2019, again
The government did not address concerns pertaining to banks not passing on the benefit of interest rate cuts by the RBI, to home loan borrowers. The long-standing demand of a single-window clearance for the real estate sector and granting of industry status to sector, etc., also remained unaddressed. However, this being the second budget (i.e., after the interim budget) in a year, there was little scope to make a big move. The government has presented its vision for the next five years, in line with becoming a USD 5 trillion economy, in the near future.
Additional inputs from PTI:
To widen the tax net, the government has proposed to introduce 5% TDS on all payments made by individuals to contractors or professionals, in excess of Rs 50 lakhs a year. Currently, there is no requirement for an individual or Hindu Undivided Family (HUF) to deduct tax at source, on payments made to a resident contractor or professional when it is for personal use, or if the individual or HUF is not subjected to audit for his business or profession. “It is proposed to insert a new provision, making it obligatory for such individual or HUF to deduct tax at source, at the rate of 5%, if the annual payment made to a contractor or professional exceeds Rs 50 lakhs,” said the Budget document. The budget also proposed to tax gifts, in the form of money or property situated in India, by residents to non-residents. Sitharaman proposed to tax such gifts from on or after July 5, 2019.
Budget 2019: Top 5 expectations of the real estate sector
With the real estate sector facing a liquidity crunch and multiple taxes adding to the burden on home buyers amidst a slowing economy, we look at the expectations of the real estate fraternity, from the first budget of Modi Sarkar 2.0
July 4, 2019: The aam aadmi always hopes that the union budget will have announcements that will impact their lives positively – for example, by improving their income and helping them to get jobs. Similarly, the real estate sector too hopes that the budget will alleviate their major problems and boost growth in the industry.
1. Solution to funding issues
The real estate sector has been facing a significant funding crunch, which was aggravated by the distress in the NBFC (non-banking financial company) sector. “The realty sector is expecting the government to ease ECB (External Commercial Borrowing) norms, to ensure steady inflow of capital from foreign investors. Similarly, the introduction of housing bonds, granting of special status to HFCs (housing finance companies), at par with the banking sector, will further help in providing the much-needed fillip to the housing segment, across all markets and geographies. For ambitious government welfare schemes, such as the ‘Housing for All’ initiative to be a reality, such reforms are prerequisites,” asserts Anshuman Magazine, chairman and CEO – India, Southeast Asia, Middle-East and Africa, CBRE.
2. Support for affordable housing
While the government has taken several initiatives to boost affordable housing in the country, experts maintain that there is room for more steps. According to Nimish Gupta, MD south Asia, RICS, investments in infrastructure development are likely to have a substantial share. This should help in increasing developers’ access to funds, for the development of affordable housing projects, in addition to initiating rental housing, he adds. “Highest levels of compliances and adoption of business best practices will, therefore, need to overlap with advancements in technology and delivery mechanisms, for the affordable housing scheme,” says Gupta.
3. Tax rationalisation
The real estate sector is also expecting further relaxation in the GST rates. Recommendations, to cut the corporate tax and extend the SEZ program, have also been put forth. There is fear that if the tax incentive for SEZs is withdrawn, it could severely hit the job creation ability of the sector. Praveen Dhabhai, COO, Payworld, points out, “We expect Modi 2.0 to think towards the reduction in GST, for remittances where the margin is wafer thin. The current GST rate is levying a huge burden on the end consumers.”
4. Cross purchasing of residential and commercial properties, from sales proceeds
At present, there are restrictions on tax benefits, if the seller of a residential property uses the sales proceeds, for buying a commercial property, or vice-versa. Analysts are hoping that the government will take the initiative, to allow the use of sale proceeds of residential property to purchase commercial property and vice-versa.
5. Infrastructure development
The union budget should focus on a holistic plan for infrastructure and housing development, in the peripheral locations and tier-2 and tier-3 cities, says Magazine. A boost for infrastructure, will not only benefit the realty sector but also help other industries and create large scale employment in the economy. “For the creation of large-scale housing developments, tax benefits under Section 80-IA and Section 35AD (deductions to encourage private sector participation within the infrastructure sector) should be extended to integrated township projects, by including the same within the definition of infrastructure facility,” Magazine concludes.
Key expectations of the realty sector from Budget 2019
5 expectations that Interim Budget 2019 must address, to uplift the real estate sector’s sentiment
With the real estate sector facing the problem of high inventory, low liquidity and high input cost, we look at some of the top issues that one hopes the interim budget will address, for a revival of the sector
Update on February 1, 2019:
Tax exemptions proposed in Interim Budget 2019
- As a once in a lifetime benefit, the of rollover of capital tax gains is proposed to be increased from investment in one residential house to that in two residential houses, for a tax payer having capital gains of up to Rs 2 crores.
- Exemption on notional rent on unsold inventory increased from 1 to 2 years – i.e., notional rent wil lbe levied only after 2 years.
- Affordable housing – Section 80IBA – benefits extended by another year if registered by 2020.
- TDS exemption on rental income increased from Rs 1.8 lakhs to Rs 2.40 lakhs.
- TDS threshold on interest earned from banks, FDs, etc. – raised from Rs 10,000 to Rs 40,000.
- Notional rent to be exempt on second self-occupied house.
- Standard deduction raised from Rs 40,000 to Rs 50,000 for salaried classs.
- Individual tax payers with annual income of up to Rs 5 lakhs to get full tax rebate. Those with gross income of Rs 6.5 lakhs may not be required to pay tax, if they do investments in specified savings like VPF, etc.
Head – consulting services at Colliers International India
With exemption on notional rent for self-occupied second homes, the Government has addressed a significant pain point for the middle class, particularly migrants with dependant parents. Along with capital gains exemption for up to two houses, this will allow people to have a diversified portfolio for real estate investment – which will spur demand across the country, including Tier 2 and Tier 3 cities.
Managing Director (south), Colliers International India
Review of “GST impact on homebuyers” by group of ministers is a positive step, but it is disappointing to note there is no timeline around the changes to be introduced and implemented. It’s will be a wait and watch on this front unfortunately.
The Indian economy is expected to remain one of the fastest growing economies in the world. This is possible, only if India’s realty sector performs well, as it contributes a significant portion to the GDP. Hence, there are hopes that the government will address several challenges faced by the sector, in the interim budget 2019. Some of these pertain to taxes, funding and liquidity, rental housing and project approvals. Experts also maintain that while the affordable housing segment has been granted infrastructure status, it would help if this was extended to other segments of residential housing, as well.
5 concerns that require attention in the interim budget 2019
According to Niranjan Hiranandani, co-founder and MD of the Hiranandani Group, the government should focus on the following concerns, in the interim budget 2019:
- “Incentives for rental housing, to meet the acute shortage.
- A clear policy roadmap for the creation of rental housing stock and exemption from the burden of tax on notional rental income.
- Rationalisation of GST in case of under-construction properties – the GST should be pegged at either eight per cent with an input tax credit or five per cent without the input tax credit.
- Focus on financial re-engineering concepts, to overcome the NBFC crisis and the challenge caused by the IL&FS default.
- Incentives for new asset classes in real estate, like affordable housing, warehousing and logistics, co-working spaces, co-living spaces and light industrial spaces.”
Another demand that has been repeated in previous budgets, includes a smooth process for granting permissions and clearances, in a time-bound manner.
While generous funds were allocated for various highways projects in the previous budget, experts maintain that pace of building roads should increase, as improved connectivity is the lifeblood of the real estate industry.
Apart from that, the creation of more employment in the infrastructure sector can redeem the incumbent government’s well-documented shortfall on that front.
The expectation of the real estate sector, from budget 2019
Ashok Mohanani, chairman of Ekta World and vice-president, NAREDCO West, feels that home loan interest rates are the foremost concern of home buyers. “If the tax deduction limit is increased up to Rs five lakhs from the present Rs two lakhs per annum, there will be a positive impact, which will help home buyers to save money on home loans,” he says.
The finance minister also needs to adopt a holistic view, while making proposals for real estate. As per data available from the Ministry of Housing Affairs, the total estimated investment under the Pradhan Mantri Awas Yojana (PMAY), as on January 2019, was Rs 3.87 lakh crores, of which the central government has sanctioned approximately 27 per cent, while only 32 per cent of the sanctioned amount has been released so far. Evidently, despite the government’s concerted efforts towards achieving its objective of ‘Housing for All by 2022’, the deficit is too large to ignore.