In a comprehensive Budget designed to serve as a strategic roadmap for Prime Minister Narendra Modi’s third term, Finance Minister Nirmala Sitharaman has delineated the government’s primary objective to facilitate India’s emergence as a $4 trillion economy by FY25.
Highlighting a series of initiatives to fortify India’s standing as the world’s fastest-growing economy, the FM emphasised infrastructure and urban development as two of the nine pivotal focus areas for the administration.
To bolster infrastructure, the government has allocated Rs 11.11 lakh crore for capital expenditure, representing 3.4% of the GDP. This substantial investment aims to advance the development of ‘Cities as Growth Hubs’ through economic and transit planning and the systematic development of peri-urban areas using town planning schemes. These initiatives are expected to catalyse the next phase of growth in India’s crucial housing markets, particularly in Tier-II and Tier-III cities.
Under the new PMAY 2.0 scheme, FM Sitharaman announced a budget of Rs 10 lakh crore, which includes Rs 2.2 lakh crore in Central assistance over the next five years for the urban component of this centrally sponsored housing initiative. The scheme envisions providing an interest subsidy to facilitate affordable housing loans, enabling one crore urban-poor and middle-class families to achieve homeownership in the world’s most populous country, where affordability remains a critical factor.
The Finance Minister’s decision to remove the indexation benefit for long-term capital gains (LTCG) tax on real estate marks a significant shift for the sector. While the intention to simplify and rationalise the tax regime is clear, the removal of the indexation benefit, despite the reduction in the LTCG tax rate to 12.5%, could lead to a higher tax burden on real estate transactions.
Additionally, the government plans to promote homeownership by encouraging states to reduce stamp duty rates, particularly for women. This could significantly reduce the cost of property acquisition in India, a country where stamp duty rates are one of the highest in the world.
The proposed changes in the GST law, an increase in standard deduction under the New Tax Regime and the rationalisation of the tax structure are some of the other key measures that would enable India’s salaried class to have more disposable income, consequently boosting housing demand in the country.
— The author is Group CEO, Housing.com & PropTiger.com.
