The Budget provided the desired push to incentivise the housing sector, with steps to promote affordable housing. It also aims to kickstart the investment cycle especially in real estate sector, which had dried up post demonetisation.

An important announcement was granting infrastructure status to affordable housing. It has been complemented by increasing allocation to rural housing programme by more than 50 per cent to ₹23,000 crore. Affordable housing projects will now be eligible for several government incentives, subsidies, tax benefits and, most importantly, access to long-term institutional funding. The status could also mean that the Government may release land specifically for affordable housing development in major urban centres.

The Government has given considerable thought to addressing roadblocks by providing several direct tax incentives on housing development. It has clarified the taxability of Joint Development Agreements (JDA) and has proposed that the liability of tax payment under JDA would now arise when the project completion certificate is obtained.

Conditions for claiming exemption in relation to income earned from affordable housing projects is proposed to further relax from the erstwhile built up area to carpet area. Further, eligible area for claiming exemption from profit of affordable housing projects within the periphery of metro cities is proposed to increase from 30 sq m. to 60 sq m.

The time limit for completing such projects is proposed to be increased to five years. The revised timeline is expected to give reasonable time to real estate developers to complete the project for claiming tax exemption.

To promote the real-estate sector and to make it more attractive for investment, the Government has proposed to reduce the period of holding from the existing 36 months to 24 months in the case of immovable property to qualify as long term capital asset.

Unsold inventory is proposed to be taxed after one year of completion of construction. This would compel developers to liquidate/ sell off their inventory well on time.

The Budget lacked big measures to stimulate property demand. In fact, some announcements may have a negative impact on the property demand in near term.

The Budget fine print indicates the tax arbitrage available to individuals via setting off loss from second home has now been limited to ₹2 lakh. The provision may discourage investment in second property to save tax.

Additionally, no major relaxation in personal tax was provided, besides incentives for individuals with income of less than ₹5 lakh.

Lastly, the Budget lacked specific measures for promoting REITs, commercial real estate development and rental housing.

Bansal is Partner and Head – Building, Construction and Real Estate Sector and Tripathi is Partner at KPMG in India. The views are personal

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