Budget 2021

Realty sector: Tweak in interest rebate treatment may shake the foundation

Varun Aggarwal Mumbai | Updated on February 01, 2020

Sector also rues lack of measures to boost liquidity

Real-estate buyers could lose out on a major tax incentive while buying a new home. With a new regime for personal income tax, albeit optional, kicking in, the tax incentives on interest payment will have to be foregone.

The impact could be severe on the real estate industry, which is already facing one of the biggest slumps ever with unsold inventory continuing to build up.

The new personal tax regime will make filing returns simpler but you’ll have to forego all the deductions, including interest paid on your housing loan. Giving up the ₹2 lakh rebate will be huge ask for most buyers and it may further dampen the sentiment in the realty sector.

“Apart from the affordable housing push and personal tax relief, no major benefits have come in to resolve the current mess. For instance, a hike in the ₹2 lakh tax rebate on housing loan interest rate under Section 24 of the Income Tax Act could have kick-started healthier demand, especially in the affordable and mid-segment categories. But there was no announcement in this regard,” said Anuj Puri, Chairman – Anarock Property Consultants.

There was also no major announcement on easing liquidity, a major worry for most developers.

“From the real estate sector point of view, it had been disappointing. Overall, we would have liked to see a few of the several long-standing needs and issues of the real estate sector such as granting of industry status, tax on the notional income of individual investor on second or third home, offset of loan interest from income, developer subvention and RERA as a single body for customer grievances, addressed. After witnessing a slew of supportive initiatives last year, we had high expectations from the first budget of the decade,” said Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure.

“Project delays, the biggest fallout of the cash crunch, have severely dampened buyer sentiments. There was a dire need to address this concern,” Puri said.

Land reforms ignored?

The Budget also did not announce any measures to implement land reforms. The lower 15 per cent tax rate on companies looking to set up new factories will apply only if they can acquire land easily. Further, bringing greater transparency to the country’s outdated land records system would help attract more foreign investors and limber up the approval procedure for real-estate projects.

There were some carrots too in the budget. For instance, capital gains tax paid on the differential of circle rate and real estate transaction value will now apply only if the difference is over 10 per cent. Previously, it applied to all transactions with a difference of over 5 per cent in circle rate value.

“The proposal to extend tax holiday on profits earned by developers is welcome, as last year the real estate industry suffered due to low sales figures. The government has also extended additional ₹1.5 lakh tax benefit on interest paid on affordable housing loans, which is a relief to homebuyers. This, along with the revision of the income tax slabs, will encourage home buyers to invest in their dream homes,” Manish Ramjiyani, Managing Committee Member, CREDAI MCHI RAIGAD, said.

The allocation of ₹100 lakh crore for infrastructure development in the next five years is a move in the right direction, most believe.

“The announcement made by the FM for bringing relief to NBFCs will prove helpful in addressing the liquidity situation in the real estate industry. This is further expected to improve sentiments among the financial institutions and offer more credit options for big and small developers,” Anshuman Magazine, Chairman and CEO - India, South East Asia, Middle East and Africa, CBRE, said.

Published on February 01, 2020

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