Budget 2017: 5 taxation changes that could boost real estate

Moneycontrol Bureau

The real estate sector, which is going through an extended slowdown, is pinning hopes on Finance Minister Arun Jaitley to announce a slew of measures to infuse fresh life into the sector.

Property offtake has been slow for the past couple of years, a trend that was aggravated by government’s demonetisation decision announced by Prime Minister Narendra Modi on November 8, 2016.

"Given the policy reforms undertaken by the government in 2016, we are hopeful that the upcoming budget will provide much needed stimulus to the real estate sector. We expect Budget 2017-18 to give greater relief to first time home buyers and higher House Rent Allowance (HRA) deduction to uplift the real estate industry," says Surendra Hiranandani, Chairman & Managing Director, House of Hiranandani.

We collate 5 major taxation-related demands of the real estate sector as put out by Hiranandani and property consultant JLL.

Greater tax incentive for first-time homebuyers

Government should provide tax incentives for first time home buyers. First-time home buyers were given additional Rs 50,000 tax exemption in the previous budget for a house worth up to Rs 50 lakh with a loan of up to Rs 35 lakh. This announcement mostly benefited end-users in tier-II, III cities but not as many in the bigger metros where housing is largely above this specific limit. A higher limit specific for bigger metros can be introduced.

Higher tax sops on housing loan

The government should increase the tax deduction limit for housing loans, especially for buyers in metropolitan cities. The current limit of Rs 2 lakh is insignificant given the ticket sizes in cities, especially in bigger metros like Mumbai, where an overwhelming majority of the available housing is priced at, or above, Rs 1 crore.

Initiate tax relief on home insurance premiums

Tax concessions on house insurance premiums can be introduced to encourage end-users to insure their homes.

Raise house rent deduction (HRA) limit

Salaried persons get house rent allowance (HRA) as a component of their total salary, and can therefore claim a substantial deduction in cases where the salary and its HRA component are higher. However, a salaried person without any HRA component or a self-employed person or those who draw lump-sum pays without an HRA component can only claim a maximum deduction of Rs 5,000 a month under Section 80GG. Finance Minister, Arun Jaitley, can make this limit more realistic and bring it in sync with today’s housing rents.

Remove multiple taxes on REITs

The presence of multiple taxes have also acted a stumbling block due to which there has been no Real Estate Investment Trust (REIT) listing. The government must look in to it as REIT's can certainly provide the much needed boost to the sector.