While homebuyers want the government to create a stressed asset fund to deal with incomplete projects, developers are hoping that the government will bring stamp duty within the purview of GST.
Both homebuyers and real estate developers are hoping that the interim Budget 2019, just before elections, would help turnaround their fortunes. Some buyers continue to pay EMIs while awaiting delivery of their homes for over a decade and developers are struggling with unsold inventory and high taxes.
While builders are hoping that the government would bring stamp duty within the purview of GST; provide Input Credit of construction against output of renting; incentivise rental housing to meet Housing for All commitment by 2022 and increase limit of interest deduction, paid on home loan, from 2 lakh to 3 lakh, buyers are hoping that the government would take steps for the creation of a stressed asset fund to deal with the issue of incomplete projects and provide an EMI holiday to those whose houses have been facing undue delays.
Abhishek Kumar of NEFOWA, a flat buyers body active in NCR, said that government should set up a stressed asset fund to ensure that unfinished houses are finally completed and a tax holiday be provided to home buyers who have have been awaiting delivery of houses for over five years.
A high-powered committee, set up at the request of the Uttar Pradesh government, had last year suggested creation of a stressed asset fund to deal with incomplete projects where builders don’t have the resources to finish the projects.
Last year for the first time, home buyers had sent their wish list for Budget 2018 to the finance minister. Among other things, they had demanded that the government bring the entire real estate sector under the ambit of GST and ensure that builders pass on the benefit of input tax credit to buyers. They had also called for an amendment to the Insolvency and Bankruptcy Code 2016 and designating home buyers as 'primary secured creditors'. Those demands have so far been met.
Real estate developers on the other hand have called for rationalisation of GST on real estate. After GST implementation, GST on under construction properties has been fixed at 18 percent, with one third abatement for land, which works out 12 percent on the sale value. Abatement for land in Service Tax regime, before GST, was 70-75 percent of the property value, including land cost, and service tax was imposed only on 30-35 percent of the property value.
Developers argue that since land cost varies from cities to cities and in some cities it goes up to 80 percent of the total property value, it is unfair to restrict land abatement to 33 percent. It should either be the actual market value of land or at least 50 perent of the total property cost. Keeping extra burden on poor in view, GST on low cost houses up to 60 sq mtr carpet area, in an affordable housing project, which has been given infrastructure status, has already been brought down to 12 percent with one third abatement for land, which works out to 8 percent net.
It is suggested that the GST on under construction housing properties be brought down to 12 percent slab and land abatement increased to 50 percent. This will bring down the effective GST rate to 6 percent, which, after Income Tax Credit will become tax neutral for the end consumers, said eal estate body Naredco.
Naredco has suggested that stamp duty be brought under the purview of GST. Since GST in-compasses all taxes, Central and State, keeping stamp duty out of its purview increases total tax burden on consumers.
It has also suggested that rental housing be incentivised. Income from renting of housing properties be taxed at a flat rate of 10 percent and the cap on adjustment of interest deduction on computation of house property loss be removed to promote new housing stock.
“To improve the effective ROR from renting, it is suggested that the deduction from rental income under Section 24(a) be increased from 30 percent to 50 percent. This will promote rental housing. For handicapped, women and senior citizens, the deduction could be 100 percent, keeping social requirements and empowerment of women in view," it said.
The builders’ body is also hoping that the government would increase the limit of interest deduction paid on home loan, from 2 lakh to 3 lakh.
Under Sec. 24(b), deduction on account of interest payment on housing loans is permissible to owners of rented dwelling units. In case of owner occupied houses the limit is set at Rs 2 lakh. Also, the deduction is available after acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed.
“It is suggested that the deduction on account of interest payment available under section 24 should be made applicable from the year in which capital was borrowed as for principal u/s 80C and should be to the extent of full interest paid, at least in respect of one house. In case this is not agreed, at least the limit of Rs. 2 lakh should be raised to Rs. 3 lakh for owner occupied houses. Also, five years period for acquisition / completion from the year of borrowing should be dispensed with. This will provide much needed impetus to housing sector which is reeling under huge housing shortage and relief to consumers, in view of delayed projects due to cash flow," said Naredco.
Niranjan Hiranandani, National President, NAREDCO, said: "Rationalisation of taxes would be the one most important factor that the real estate industry would expect at this point of time from the upcoming Budget. It is not just about reducing taxation rates; rationalisation of taxes is necessary as it will create an environment conducive along with the positive sentiment to enable generate new business opportunities across the economy. Among the expected points, I would also add the expectation of bringing Stamp Duty within the purview of GST; Input Credit of Construction against output of Renting; incentivize Rental Housing to meet Housing for All commitment by 2022 and increasing limit of interest deduction, paid on home loan, from 2 lakh to 3 lakh. The real estate industry looks forward to a positive Budget."
Farshid Cooper, Managing Director, Spenta Corporation, also said he is hoping the government will bring stamp duty under purview of GST.
"To address the issue of affordability, stamp duty should be included in the purview of GST. This has been a longstanding issue for homebuyers and developers alike and we hope that it is addressed as soon as possible," he said .firstname.lastname@example.org