The real estate sector is a significant contributor to the nation’s gross domestic product (GDP) and, given its significant backward and forward linkages, it provides significant employment opportunities. Especially the residential sector has been impacted by the several pandemic waves, and only recently has the sector shown some signs of recovery. In order to sustain growth in the sector it was expected that Budget 2022 would have significant tax reliefs, and incentives for the sector. While there were welcome initiatives from a policy perspective, there was not much on the tax side.
The allocation of Rs 48,000 crore to enable building of 8 million houses under the PM Awas Yojana is a welcome measure. The same will enable meeting the government initiative of Housing for All, and provide impetus to the construction industry, in particular the steel and cement segments.
At the same time, the government has announced that it will work along with the states to reduce time taken for land and construction approvals for middle income houses and economically weaker sections housing, it will take steps to improve access to capital and reduce cost of intermediation for such capital. All these steps are welcome.
The hospitality sector has been one of the most-severely impacted segments in the economy, and it continues to reel under pandemic-induced pressures. The Emergency Credit Line Guarantee Scheme (ECLGS) has been extended to March 31, 2023 and Rs 50,000 crore under the scheme has been earmarked for the hospitality sector, which shall assist in the sustainability of the hospitality sector.
As the direct tax holidays for Special Economic Zones (SEZ) has been phased out, the industry has been requesting the government to relook at the policy. The government has taken these concerns on board and has announced that they will replace the existing SEZ legislation with new laws, enabling participation of the states in the development of enterprise and service hubs, and will cover all large existing and new industrial enclaves.
The government has also stated that it will encourage the states to adopt unique land parcel identification numbers to facilitate digitised management of records and meet the objective of ‘anywhere registration’ of deeds, and other transfer documents.
From a direct tax perspective, withholding tax rate of 1 percent applicable on transfer of immovable property by a resident transferor is presently applied on consideration paid. The same has been amended to be applicable on higher consideration paid or stamp duty value of the immovable property, which removes inconsistency with respect to allied sections relating to transfer of property.
From an REIT perspective, the industry ask was to reduce the holding period for units of an REIT to be on par with listed shares, rationalisation of the exemption provisions in the hands of the sponsor related to set up of the REIT, etc. However, the government did not make these changes, and instead has extended bonus stripping and dividend stripping provisions which are anti-abuse provisions currently applicable to shares to units of the REITs/AIFs/InvITs, which can bring parity among the various capital assets and remove any artificial tax distinction between capital assets.
Further, the surcharge applicable on long term capital gains arising from transfer of capital assets has been capped at 15 percent for all types of capital assets, which is welcome. Special provisions for withholding tax at higher rate for non-filers of income-tax return will not be applicable to withholding to be undertaken with respect to rental payments made by certain individuals and HUFs, and on any payment made for transfer of immovable property.
In summary, the tax expectations of the industry were not met in Budget 2022. But the fact that no new taxes were levied or any provisions that would impact the sector negatively have not been introduced is a positive for the sector. At the same time, policy initiatives announced in the Budget should help alleviate some of the concerns of the industry.
Gaurav Karnik is National Leader Real Estate, EY India. Views are personal, and do not represent the stand of this publication.
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