Budget 2023 wish list: Real estate sector seeks infrastructure status, tax breaks, push for rental housing

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The real estate sector’s expectations from Budget 2023 include infrastructure status, tax breaks, incentives and policy rationalisation. Experts say that the government should also consider increasing the SWAMIH fund intended for stalled projects from Rs 5,000 crore to Rs 50,000 crore to ensure the completion of stuck projects and boost homebuyers’ confidence.

Long-term capital gains (LTCG) from the sale of house property are taxed at 20 percent through a special provision like Section 112 for equity shares. In addition, the period of holding of house property is currently 24 months to qualify as LTCG (Section 54 of the Income-tax Act, 1961). The tax rate should be reduced from 20 percent and the holding period for a property be reduced from 24 months to 12 months to avoid capital gains tax liability, experts said.

While the SWAMIH fund recently got a capital infusion of Rs 5,000 crore, “We recommend an increase in its overall size to Rs 50,000 crore. As post-COVID-19, last-mile funding to stressed housing projects has become imperative to boost residential activity and consumer sentiments,” said Anshuman Magazine, chairman and CEO, India, South East Asia, Middle East & Africa, CBRE, the global real estate consultancy.

Raise tax deduction limit

The National Real Estate Development Council (NAREDCO), an apex body formed under the aegis of the ministry of housing and urban affairs (MOHUA), has recommended that the government consider an increase in the limit of interest deduction under Section 24(b) of the I-T Act and removal of Section 23(5) relating to notional rental income from the housing stock.

It has recommended that the government incentivise rental housing and affordable housing by amending the provisions of Section 80-IBA in the upcoming budget.

According to NAREDCO, certain regulations and taxation blocks should be eliminated, particularly those concerning the deduction of interest for customers looking for a home loan and the tax load on developers working on affordable and rental housing.

The body has also recommended amending or removing certain sections of the I-T Act and incentivising business entities and individual investors looking to invest in the sector.

To boost housing absorption, the budget should offer personal tax relief, the body said. This could include expanding the deduction available for home loans under Section 24 (b) from Rs 2 lakh to Rs 5 lakh. Such an incentive will stimulate demand and lessen the housing deficiency in the nation, NAREDCO said.

The last increase in the deduction limit under Section 80C (to Rs 1.5 lakh a year) was in 2014.

The apex industry body has also urged the government to remove Section 23(5) of the I-T Act. “Developers should be exempted from the burden of tax on notional rental income under Section 23(5). The idea of notional rent levied on development companies from the properties held as stock in trade opposes the idea of the promotion of rental housing in India,” said Rajan Bandelkar, president, NAREDCO.

Affordable housing push

NAREDCO has proposed guidelines related to the profitability of budget-friendly housing projects under Section 80IBA. Section 80IBA allows a deduction equal to 100 percent of profits and gains derived from an affordable housing project.

The government should consider revising the price bandwidths for homes to qualify as affordable housing to align with the market dynamics of different cities, said analysts.

The size of units as per the current definition (60 sq m carpet area) is fairly appropriate, but the catch-all pricing band of up to Rs 45 lakh for affordable housing is definitely not appropriate across most cities, said Anuj Puri, chairman, Anarock Group, a leading Indian real estate services company.

For instance, a price band of Rs 45 lakh or below is far too low in a city like Mumbai, where it should be increased to at least Rs 85 lakh. In other major cities, the qualifying price band should be increased to Rs 60-65 lakh.

Such a move would have more homes qualifying as affordable housing, and many more homebuyers would be able to avail the current benefits like reduced goods and services tax at 1 percent without input tax credit and other government subsidies.

It is often difficult to comply with the criteria outlined in Section 80IBA for most cities. The section should be updated to accommodate the evolving needs of the industry, said Parveen Jain, chairman, NAREDCO.

Incentivise reantal housing

Section 80-IBA(6)(da) incentivises rental housing projects notified on or before March 31, 2022. “In addition, many states have yet to decide on a rental housing policy. Thus, the time period for offering incentives to developers should be prolonged to a minimum of five years,” said Jain.

“In order to accomplish the goal of housing for all, real estate developers should be encouraged to create surplus rental housing with tax incentivisation. The industry recommends an increase in standard deduction in rental housing up to 50 percent and incentives for serviced rental apartments by allowing accelerated depreciation. Also, tax on notional income from house property held as stock in trade needs to be waived completely to boost real estate investment,” said Niranjan Hiranandani, vice chairman, NAREDCO.

Infrastructure structure should be granted to avail long-term cheap funding as this interest rate-sensitive sector is grappling with inflation-led high cost of borrowings. This will allow developers to build and deliver housing projects at an affordable cost, he said.

The apex body has also recommended that Section 194 IA which relates to tax deducted at source (TDS) on immovable property should not include deposits and other capital payments. Currently, 1 percent TDS is deducted by the buyer at the time of purchase of immovable property from a resident seller for a consideration of Rs 50 lakh or more.

NAREDCO has also recommended amendments to the provision of deductions under sections 54 and 54EC. According to Section 54, a person who sells a house can be exempt from paying capital gains tax if they use the sale proceeds to buy or build two homes. The body has proposed that the rule needs modification so that the money can be used to purchase three properties.

Experts have also recommended that the cap of Rs 2 crore on capital gains for reinvesting in two properties should also be removed.

Section 54EC restricts exemption for investment in capital gains bonds up to Rs 50 lakh. NAREDCO said that the ceiling for making an investment in specified assets should be removed. It will help the government in generating funds at a much lesser cost, a measure that will boost infrastructure in the country.

"Our recommendations are focused on sustaining the current growth in the sector, boosting demand and exemptions for homebuyers. The real estate sector can add millions of livelihoods in a short time and significantly contribute to GDP. Continuous rate hikes may cause short-term turbulence in overall housing demand when buyers are optimistic about making decisions, adding to buyers' overall acquisition cost. The sector has begun to gradually recover across key property markets, primarily driven by end-users; however, repeated rate hikes may have an impact on the interest-sensitive sector. The sector’s growth will directly fuel the growth of all ancillary industries thereby creating a cascading effect on job creation and economic development,” said Harsh Vardhan Patodia, president, Confederation of Real Estate Developers' Associations of India.