The first budget at the beginning of a 5-year tenure of a government always has expectations. People are hopeful that the government will provide major tax relief. The realty sector is standing steadfast with its list of demands, with tax relief as a priority. This is because people have witnessed high inflation over the last couple of years. Hence, a tax cut can allow them to adjust their finances with greater disposable income in hand. GST reforms can relieve the supply side whereas income tax relaxations can boost the demand side. Let us look at the different tax-related demands from the upcoming budget that can boost the realty sector.
Lower the GST rate on under-construction property and construction materials
When people buy an under-construction property, they have to pay a GST depending on the category of the unit, that is, whether it is an affordable or a non-affordable property. For affordable under-construction residential properties, the GST is 1% without an input credit facility. The same is 5% for non-affordable under-construction residential properties. Though GST is not charged on ready-to-move-in projects, the builder includes the GST in the property rate. Hence, experts believe that if the government reduces the GST on under-construction properties, it will help in reducing property prices.
‘To benefit home buyers, the Government of India should consider lowering GST rates to increase demand for under-construction developments. Additionally, reintroducing Input Credits would help developers reduce the tax burden and, in turn, benefit the customers, which would further ensure a good supply of residential developments’, opines Kamal Khetan, Chairman & Managing Director, Sunteck Realty Ltd.
Increasing the tax benefit towards the principal amount of a home loan
Loan prepayment can help a home buyer save extensive interest in the long term. Experts believe that borrowers would be interested in loan prepayment when they are offered extra tax savings, otherwise, they may find it beneficial to park excess funds in other investment avenues with decent returns.
Increasing tax deductions on the principal of a home loan can allow a greater financial cushion to people facing financial challenges due to the steep increase in inflation in the last couple of years.
Increasing the tax benefit towards the interest of a home loan
Interest on home loans has not reduced in the last couple of years. People are additionally troubled by the high inflation rate. Therefore, a home loan borrower needs greater support in terms of tax benefits towards home loan interest payments.
‘An increase in the home loan interest deduction limit from INR 2 lakhs to INR 4 lakhs for tax rebates could significantly improve homebuyer savings and decision-making’, says Dr. Samantak Das, Chief Economist and Head – Research and REIS, India, JLL.
Property prices have increased significantly in the last few years; hence, home buyers have to take bigger loan amounts compared to the past. Therefore, the current deduction allowed in the home loan interest payment is insufficient for them.
Amit Jain, Chairman & Managing Director, Arkade Developers, says, ‘While residential real estate is experiencing a significant surge with historic high numbers, additional tax relief for individuals is essential to combat rising inflationary pressures. This can potentially be accomplished by increasing the deduction for interest on home loans from INR 2 lakhs to INR 5 lakhs. The current surge in interest rates has resulted in higher EMIs for homebuyers, limiting fund utilisation, thereby, limiting the potential of the sector at large’.
Extension of the deadline for existing benefits, such as u/s 80IBA and 80EEA
Benefits u/s 80EEA and 80IBA were popular and helped the realty sector grow quickly despite the COVID-19 setback. An extension in the deadline for these tax benefits can empower the realty sector.
‘Extending the 100% tax holiday under Section 80IBA for affordable housing project approvals until March 2025 would support continued growth in this critical sector. Also, the extension and enhancement of the interest deduction for first-time homebuyers under Section 80EEA, with an increased limit of INR 2.5 lakh, could boost the housing market’s momentum, especially in the lower and mid-income segments’, adds Dr. Das.
Conclusion
Though the realty sector is expecting major tax reliefs from the budget, they are aware of the government’s intention of wanting more taxpayers under the new tax regime. Therefore, there is not much that the government could do with the old tax regime.
‘People anticipate tax reforms every time the budget happens. However, I believe this year won’t bring any significant changes to Section 80C, HRA or similar provisions. This is primarily because the government announced a major new tax regime last year. I think this time they will focus on enhancing the new tax regime. They might increase the upper limit of lower taxes from 15 lakhs to 20 lakhs. I don’t expect them to increase the benefits under Section 80C from 1.5 lakhs to 2 lakhs as it would be counterintuitive to their aim to move away from such provisions. Regarding personal income tax, my view is that there won’t be any substantial changes’, says Anand K Rathi, co-founder of Mira Money.
| Tax-related budget expectations by the realty sector
Old tax regime:
New tax regime
GST changes
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