India’s $200 billion real estate sector has finally got some reprieve in the last budget tabled by the incumbent government. In an effort to push the Prime Minister’s housing-for-all initiative, the government has announced a whole set of tax reforms for the sector in Interim Budget 2019.
The changes in tax policies are also expected to boost home sales which have been subdued in markets such as national capital region, Mumbai and other big cities.
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From exemption on levy of income tax on notional rent on a second self-occupied house, a one-time tax exemption on selling of property, to tax rebate to people with income up to Rs 5 lakh per annum which will have direct impact on affordable house buying, the government is going all out to achieve its ‘Housing for all’ target by 2022.
“With exemption on notional rent for self-occupied second homes, the government has addressed a significant pain point for the middle class, particularly migrants with dependant parents. Along with capital gains exemption for up to two houses, this will allow people to have a diversified portfolio for real estate investment. This will spur demand across the country, including tier-2 and tier-3 cities,” said Aashish Agarwal, head, consulting at Colliers International.
Tax rebate for income up to Rs 5 lakh would help in increasing the home buyer's budget and provide a big boost to demand for housing, said Joe Verghese, Managing Director at Colliers International.
“Currently, income tax on notional rent is payable if one has more than one self-occupied house. Considering, the difficulty of the middle class having to maintain families at two locations on account of their job, children education. I am proposing to exempt levy of income tax on notional rent on a second self-occupied house,” Finance Minister Piyush Goyal said in his Budget speech.
Experts believe that over the next one year there would be an increase in the number of affordable housing projects being rolled out. At present there are close to 100 affordable housing projects that are in the pipeline.
“Affordable housing continues to get an impetus with benefits under Sec 80(i)BA being extended for one additional year, for housing projects approved till end of 2019-2020. Real Estate suffered the maximum brunt is now expected to grow significantly in light of the changes that these schemes and reforms intended,” said Nimish Gupta, MD South Asia, RICS.
According to industry experts, government giving a rebate till Rs 5 lakh would however be the game changer as now more people might end up buying affordable housing. “The announcement will have much stronger impact on real estate sales especially for affordable housing buyers. Not only government is giving credit link subsidy scheme for these buyers but also leaving more money in hand to pay EMIs through increased tax savings,” said Ankur Dhawan, Chief Investment Officer, PropTiger.com.
In the Budget speech Goyal has also given benefit of rollover of capital gains under section 54 of the Income Tax Act which would be increased from investment in one residential house to two residential houses for a tax payer having capital gains up to Rs 2 crore. This benefit can be availed once in a life time.
Also experts believe that the TDS threshold for deduction of tax on rent is proposed to be increased from Rs 1.80 lakh to Rs 2.4 lakh for providing relief to small taxpayers and might just push sales of affordable houses.
“There will now be no tax on house rents up to Rs. 2.4 lakh from the previous limit of Rs. 1.8 lakh. This can attract more investors to buy second homes for earning rental income.
The rollover of capital gains tax on the sale of houses has been increased from one to two houses. This is a good move to incentivize genuine homebuyers and investors to buy new properties,” said Anuj Puri, Chairman, ANAROCK Property Consultants.
However some experts are of the opinion that real estate prices are still high the impact might be nominal. “Capital exemption on sale of one house property extended to two. Keeping in mind the current real estate price, the move does not look to be that beneficial for the common man,” Partho Dasgupta, Partner Tax & Regulatory Services, BDO India.
What's more, while home buyers and developers were looking forward to rationalisation of GST slabs for properties under construction, this has been kept open-ended for now.
“Review of "GST impact on homebuyers" by the group of ministers is a positive step, but it is disappointing to note that there is no timeline around the changes to be introduced and implemented. It is going to be a wait and watch on this front unfortunately,” said Verghese.