Budget 2019

Budget 2016: REITs & affordable homes set to fly

MUTHUKUMAR K FROM OUR RESEARCH BUREAU | Updated on January 27, 2018 Published on February 29, 2016

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Proposes additional deduction of ₹50,000 under interest on loans for first-time buyers

Real Estate Investment Trusts (REITs) may finally become a reality with the removal of Dividend Distribution Tax (DDT). Distributions from the income paid to the REITs having specified shareholding will not be subjected to DDT anymore. The Centre has further proposed a handful of measures to promote affordable housing.

For starters, it has allowed 100 per cent deduction of profits to an undertaking in housing projects for flats of up to 30 square metres in the four metropolitan cities (60 sq m for other cities). This exemption is allowed only for those projects approved between June 2016 and March 2019 and which gets completed within a span of three years.

In addition, there is a sop for first-time house buyers. An additional deduction of ₹50,000 a year as interest on loans up to ₹35 lakh sanctioned in 2016-17 is being made available if the value of the house does not exceed ₹50 lakh. One of the key raw materials for the real estate sector — Ready Mix Concrete — is also set to become cheaper with it being exempted from excise duty. The excise duty was 12.5 per cent earlier.

Background

REITs, which invest in leased offices and retail assets, hasn’t picked up in India largely due to tax-related issues. While in the previous Budget the government did away with capital gains tax for sponsors listing their property by selling REIT units, it didn’t touch the issue of DDT. In respect of real estate assets held through a Special Purpose Vehicle (SPV), if the SPV is a company, then the company pays normal corporate tax as well as DDT (as a shareholder) on the dividend income. The latter has been done away with to rationalise the tax regime for business trusts and its investors.

Verdict

Paving the way for launch of REITs could see the launch of a handful of these Trusts that could get listed. It is a positive for real estate players — as an alternate avenue to raise funds for their projects. Debt-laden developers, such as DLF, could capitalise on such opportunities to raise funds through their subsidiaries.

Affordable housing initiatives — along with 100 per cent tax exemptions — should see real estate players, including Mahindra Lifestyle, focus more on this segment. Tax gain to new home buyers can provide the much needed demand boost to the sector and benefit mid-income housing developers, such as Puravankara, Kolte Patil, Ashiana Housing and Brigade Enterprises.

Published on February 29, 2016
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