Budget Expectations: Real estate sector seeks relaxation in taxes  

The real estate sector has been in a slump for many years. However, recently on the back of a demand for bigger homes and some state governments offering incentives, the demand has been rekindled.  However, real estate experts say that due to the prolonged pandemic the sector will require support for a sustainable recovery which in turn will fuel the growth of the country. Here are a few of the Budget expectations from the leading consultancies and real estate players.  

Radha Dhir, CEO & Country Head, India, JLL 

Separate provision for deduction of 'principal repayment' on home loans up to Rs 2 lakh.

A separate provision allowing deduction of principal repayment (currently forming part of 80C deduction) up to Rs 2 lakh would provide homebuyers higher tax benefits towards the latter stage of the loan tenure. This could be a timely relief in the current scenario where several homebuyers are grappling with honoring financial commitments.  

 Removal of restriction on setting off the loss from house property against other heads of income  

The Finance Bill, 2017 introduced provisions to restrict the set off the loss from house property against other heads of income during the year. The existence of this restrictive clause severely dampens the investment sentiment in the housing market owing to lower effective post-tax returns.  The removal of this restriction will enable the individual to claim the entire interest on his let-out property without any limit, resulting in a higher effective post-tax return on property purchase. This is expected to spur higher investments in the housing sector, at a time when developers are reeling under tremendous stress to push their inventory and generate sufficient cash flows for business sustenance. 

 Reduction in holding period of REITs for long-term capital gains 

The success of three listed REITs has opened a new avenue for retail investors. Since REIT units are like listed shares, the capital gains tax treatment should be aligned by reducing the holding period from three years to one year. This will improve liquidity and help to increase retail participation. Further, a reduction in the holding period will provide REITs a level playing field with competing equity instruments. 

 Increase limit on interest deduction under section 24(B) for tax rebate 

The home loan interest deduction should be increased from Rs 2 lakhs to Rs 4 lakhs for tax rebate under section 24(B). This will effectively improve the savings of the home buyer and aid them in the home buying decision. 

 Extension of benefit u/s 80EEA to avail additional Rs 150,000 interest deduction on home loans for first-time homebuyers  

This benefit (currently available for home loans sanctioned till 31st March 2022), may be extended until 31st March 2024. This will continue to benefit first-time homebuyers. Considering that most homebuyers fall in the lower and mid-income segments, this tax benefit will boost demand substantially. This will significantly benefit first-time homebuyers who will enjoy the benefits of interest subvention under the CLSS scheme and the extended tax benefits at a time when home loan interest rates are at their lowest and developers are offering lucrative deals. 

Tax deduction on profits from affordable housing projects to be extended until March 2024 u/s 80IBA 

A three-year window of extension would help the developers to construct affordable housing projects and boost the “Housing for All” objective. Since the launch of new affordable housing projects were severely impacted during the pandemic period, an extension of the scheme will help developers to start new projects. 

Piyush Gupta, Managing Director, Capital Markets and Investment Services, Colliers India 

 While the real estate sector is looking at a robust housing demand revival in 2022, it is expected that the Union Budget 2022 will play a supportive and enabling role. The demand for bigger housing loans has increased and the expectation is that tax exemption should be relooked to Rs. 5 lakh.  Additionally, a GST waiver for under-construction properties, and incentives for private investment in the affordable housing sector will be encouraging, while tax exemptions for notified rental housing projects will accelerate the pace of investments in this scheme and help in achieving “Housing for All” objectives too. The real estate sector’s long-standing demand to widen the definition of affordable housing to include houses priced more than Rs 45 lakhs in big metro cities is expected.  

Knight Frank India 

Allow Input Tax Credit (ITC) to reduce tax burden on developer 
 

Currently, there is a GST of 5 per cent on under-construction residential units and 1% on affordable housing, but without ITC. No GST is charged on completed units. The GST on cement and steel is 28 and 18 per cent, respectively and the tax outgo has spiked along with the rise in these commodity prices. As the developers cannot claim tax credits for GST paid on input items, this amount gets added to the construction cost and leads to higher apartment price for homebuyers. Further, it also negates the purpose of GST which was to remove cascading impact of taxes. If ITC were allowed, the tax savings will be substantial and allow developers the room to lower prices.  The Government can use this budget session to assuage this concern and assure for restoration of ITC in upcoming GST council meet. The government should also look at reducing the GST rate on cement to give a boost to construction activity in the economy. 

Focused tax deduction on principal repayment of housing loans (Section 80 C) 

At present, Section 80 C of the Income Tax Act does not provide for a focused benefit on housing which is the largest and most important expense item for most taxpayers during their lifetimes. Taxpayers have numerous investment alternatives to choose from and the lack of exclusive tax benefit on the principal amount of home loans makes consumers indifferent towards a house purchase. A separate annual deduction of Rs 150,000 for principal repayment will improve housing affordability and provide the much-needed fillip to opt for home loans. 

Hiking home loan deduction limit under section 24 

Section 24 currently allows for a deduction of Rs 2 lakh on housing loan interest. This needs to be extended to Rs 5 lakh to boost affordability and housing sales.
 

Establish city-wise ticket size criteria for affordable housing to factor in local market realities 

Currently, an affordable housing unit cannot exceed a carpet area of 90 sq m in non-metropolitan cities and towns, and 60 sq m in major cities. In both cases, the cost of the unit cannot exceed Rs 45 lakh. While these criteria are appropriate for cities where there is sufficient housing inventory available within these area and cost limits, they leave homebuyers in the more expensive cities such as Mumbai very few options. Developers are also forced to increasingly reduce individual unit-sizes to qualify under these criteria and similarly buyers also have to submit to this status quo despite the obvious inadequacies that this small residence comes with. The ticket size criteria needs to be increased to at least Rs 80 lakh in a city like Mumbai so that a larger proportion of the population can take advantage of this provision. 

Ramani Sastri - Chairman & MD, Sterling Developers Pvt. Ltd 

The Indian real estate market has seen a rebound and displayed a lot of resilience post-pandemic. Now, to sustain the momentum, the real estate sector is looking forward to the much-needed reforms and incentives in the upcoming budget, especially as the sector is the primary contributor to economic growth. Even though the government had rolled out certain measures to boost the realty sector, still a lot more needs to be done to catalyse the ailing sector and address both demand and supply side. This year, the demands go beyond the usual expectation of single-window clearance and industry status. The appetite from end users needs to be rekindled though targeted demand side measures. Personal tax relief, either by tax rate reductions or amended tax slabs, is the need of the hour, which has been long overdue.  

To boost the consumption in this sector, the government should focus on providing more liquidity to the tax payer by raising the ceiling of the rebate on the home loan interest. We also expect input tax GST credit for developers, reduction in stamp duty which has happened in several states and registration charges which make a sizeable difference to the cost of a project, thereby boosting home buyers' sentiment and encouraging them to go in for property purchase. There is need to redefine ‘affordable housing’ to Rs. 50 - 60 lakhs as this would expand the benefits for homebuyers and therefore boost the end-user demand.  

Lincoln Bennet Rodrigues, Chairman & Founder, The Bennet and Bernard Company (known for luxury holiday homes in Goa) 

More tax sops and higher relief on the home loan rates will woo broader segment of homebuyers and investors to buy property. The existing tax exemption on housing loans should be raised to give impetus to buyer sentiment.  

There is specific need for income tax relief on a second home which will benefit home buyers in a big way and also stimulate the real estate sector. The budget can also support the industry by ensuring reduction in compliance issues. It should also strengthen the existing financing systems to provide liquidity as developers need a rational capital flow to keep up the work process. We are also hoping for GST reforms as this will reduce overall property cost and push demand for homes, granting of industry status to the overall real estate sector and implementation of single window clearance amongst others.  

We also hope that there will be more announcements to enhance ease of doing business for the developers and are optimistic that the real estate sector is ready for explosive growth in the post pandemic era. These reforms will also be instrumental in attracting investors, institutions and private capital players into India real-estate market. We believe that the government will take appropriate measures to spur consumer demand and give the realty sector a big shot in the arm and affirms robust infrastructure growth. All these measures together will give a big boost to the real estate sector, which in-turn would further intensify revival of the economy going forward.