The real estate sector, which has been a major pillar to India’s economy in the last couple of decades, has been experiencing a fiscal slowdown in recent years. Though, such a slowdown is a result of interplay of multiple economic factors, there have been some tax and regulatory issues, which continue to grapple the sector. While the government had initiated some measures to emancipate the realty sector this year, it is generally believed that lot more needs to be done for boosting the ailing sector.Expectation 1: Revise affordable housing limit
With effect from April 1, 2019, effective rate of GST applicable on construction of residential apartments by promoters in a real estate project was reduced to 1% for affordable housing and 5% for other properties. Further under Direct Tax, an additional deduction of Rs 1.5 lakh (in addition to Rs 2 lakh) is allowed on interest paid on loans borrowed up to March 31, 2020, for purchase of affordable houses. In this regard, please note that a flat with carpet area up to 90 square meters in non-metropolitan areas and 60 square meters in metropolitan cities is categorized as affordable, provided they do not cost upwards of Rs 45 lakh.
The said limit of Rs 45 lakh is on the lower side, especially in metropolitan cities like Delhi, Bengaluru. As a result, the tax benefit which the Government intends to provide for affordable housing is not being availed by many. Accordingly, the expectation is that the said limit would be revised upwards in the coming budget.Expectation 2: Increase limit on interest on home loan to Rs 4 lakh
Further, there is a deduction available under Section 24 of Income Tax Act, 1961, up-to a maximum limit of Rs 2 lakh for interest on loan taken for acquisition/construction of self-occupied house property. Given the rising interest and property rates, it is every home loan payer’s wish that the said exemption should be increased to at least Rs 4 lakh per annum in the upcoming budget.
Similarly, the Income tax law taxes the differential income from transfer of immovable property (in case consideration is less than the stamp duty value) in the hands of buyer and seller, provided the variation between stamp duty value and the sale consideration is not more than 5%. It is often debated that the said variation of 5% may not be appropriate for all locations in India and accordingly, should be increased to at-least 10% for all or metro-cities.Expectation 3: Remove restriction on availing input tax credit
Moving to Indirect taxes, an important issue which impacts the sector, is dis-allowance of input tax credit on purchase of inputs and input services used for construction of immovable property, meant for further let out. Albeit the lessor of premise is required to discharge GST on lease rentals, the law does not allow input tax credit on procurement, used for construction of the property to be let out. The industry hopes that the Government would remove the said restriction on availing credit, which would in turn lead to reduction in the overall tax costs on lease rentals.Expectation 4: Do away with ambiguity on additional charges
In today’s world, the developers usually provide various additional services alongside the construction service such as preferential location services (PLC), right to use the allotted car parking space in lieu of additional charges. Much like the earlier law, there exists an ambiguity, if the reduced GST rate would be applicable to such charges as well. This is because such charges are recovered in conjunction with the construction charges and services for PLC, parking are not provided on standalone basis. Thus, many believe recovery of such charges is a part of composite supply. In this regard, the Government should issue a suitable clarification in this upcoming budget.Expectation 5: Do away with restriction on set-off of loss from house property
Relief measures like removing restriction on set-off of loss from house property with income under other heads, including real estate sector in the purview of Section 72A to allow carry forward of accumulated loss and unabsorbed depreciation in case of amalgamation or demerger, resolving the issue of accumulated credit (inverted duty structure) would also help in providing the much needed thrust to the realty sector. Transformation of some of the aforesaid expectations into REALITY, in the upcoming budget, could be the sine qua non
for revival of the REAL estate sector. The author is Partner - Indirect Tax, KPMG in India. Kartik Bahl, Manager – Indirect Tax, KPMG in India also contributed to the article