Tax incentives -- for both the supply and demand sides -- are what the real-estate sector needs from the upcoming Budget, according to Knight Frank India.
While the sector did take a hit during the first and second waves of the pandemic, the property consultancy said that an improved sense of homeownership and some state government incentives rekindled demand. But to sustain the recovery, it will need governmental support, said Knight Frank India through a statement.
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Below are its recommendations for Budget 2022-2023:
What? Allow Input Tax Credit (ITC) to reduce developer’s tax burden
Why? The GST on cement is 28% and on steel is 18%, and the tax outgo has spiked with the rise in commodity prices. Since developers cannot claim input tax credit (ITC), these taxes get added to the construction cost, drive up prices for home buyers and dampen demand.
What? Losses suffered by retail and hospitality businesses during FY21 and FY22 should be allowed to be carried forward till FY24.
Why? These sectors were worst affected by travel restrictions and social-distancing norms. When the restrictions and lockdowns were lifted, these businesses had to make significant investments to get their establishments ready, only to be shut down again as pandemic fears resurfaced.
What? Tax holiday given to affordable housing should be extended by 12 months.
Why? The 100 percent tax exemption on profits given to these projects, under 80IBA, ended on March 31, 2022. The pandemic restrictions delayed registrations of these projects, which, therefore could not avail of this tax relief. Since the tax exemption was the most materially meaningful measure to boost viability of affordable housing projects, it is important to extend the project deadline.
What? Tax deduction exclusively for principal payment of housing loans under Section 80C
Why? Currently, tax deduction can be availed under Section 80C for various investments including PPF, equity-linked saving scheme, ULIP, national savings certificate (NSC) and for principal payment of housing loans. But, to drive investor interest in housing, a separate annual tax deduction of Rs 150,000 for principal repayment should be offered. Otherwise, with other tax-saving investment opportunities, consumers could be indifferent to house purchases.
Read also: Why the Covid-19 support rollback won't leave India gasping in pain.
What? Home-loan deduction limit should be raised under Section 24.
Why? To make housing more affordable and to drive up demand, deduction given under Section 24 for housing loan interest should be raised from Rs 2 lakh to Rs 5 lakh.
What? Affordable-housing criteria should be customised for different cities.
Why? As of now, an affordable-housing unit has to have a carpet area of 90 sq ft or less in non-metropolitan areas and 60 sq ft or less in major cities. In both cases, the price of the unit cannot exceed Rs 45 lakhs. While both criteria may work in some cities where there is enough inventory, in other cities such as Mumbai where real-estate is expensive, both criteria act as a hindrance. Developers are forced to reduce the size of the units to fall into the price bracket and buyers are forced to buy these cramped spaces. Better option would be to increase the price limit to Rs 80 lakh in cities such as Mumbai.
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