nterim Finance Minister Piyush Goyal has proposed a number of tax benefits for the real estate sector in affordable housing category. Experts expect the proposed measures to boost property sales across the country.
The property sector, which has been facing a number of multi-year demand slowdown, especially with dipping sales, may benefit significantly from the yesterday’s proposals.
In its interim budget, the government has proposed a number of tax sops that may tempt people to buy a second house. It also announced relief to real estate developers by extending a tax rebate on the development of affordable housing till the next fiscal.
A proposal was further announced to drop tax charges for two years on notional rent with regards to unsold properties. Besides, the government has also proposed a number of income tax sops for small and middle-income taxpayers.
Having said that, here is all you need to know about the benefits proposed by FM Goyal in interim budget 2019:
Own 2 self-occupied houses? Don’t worry about tax
Individuals who own up to two self-occupied properties do not have to pay any notional rent tax on them.
“Currently, income tax on notional rent is payable if one has more than one self-occupied house. Considering the difficulty of the middle class having to maintain families at two locations on account of their job, children’s education, care of parents etc. I am proposing to exempt levy of income tax on notional rent on a second self-occupied house,” said Goyal during his budget speech.
Anuj Puri, Chairman, Anarock Property Consultants Pvt Ltd, said: “Exemption of notional rent on the second self-occupied house will provide additional savings in the hands of the second home buyers and may also boost the investor activity in the real estate sector.”
For instance, if a person has three houses (One where he/she lives and two other self-occupied properties), only the third house will attract a rent tax.
Experts said the move will offer room to save more on housing taxes. Many people would also seek options to buy houses after the rollout of the new benefit, said experts from the property sector.
TDS threshold for tax deduction on rent hiked
The tax deducted at source or TDS threshold for deduction of tax on rent has been proposed to increase from Rs 1,80,000 to Rs 2,40,000 for providing relief to small taxpayers.
Experts said such a move would provide major relief to small taxpayers and may also drive up sales of affordable housing. It will also provide administrative relief to small taxpayers (landlords).
Capital Gains benefit on 2 housing investments
The government has also proposed rollover of capital gains up to Rs 2 crore towards buying (investing) two houses compared to only one under the present one unit only.
Under Section 54 of the Income Tax Act, the rollover benefit can be availed once in a lifetime. It is expected to lure many individuals to purchase more than one house, thus driving up real estate sales.
Tax benefits to developers on housing projects
An adidtional tax benefit for affordable housing developers to boost affordable housing in India was also proposed by the government in its interim budget.
“For making more homes available under affordable housing, the benefits under Section 80-IBA of the Income Tax Act is being extended for one more year to the housing projects approved till March 31, 2020,” said Goyal during his budget speech.
This essentially means that projects under Section 80-IBA will offer 100 per cent deduction of profits to an assessee engaged in developing affordable housing projects.
Relief for housing developers
A proposal was also made to extend the period of exemption on levy of tax — on notional rent related to unsold properties – to 2 years from the date of project completion, compared to just one year under present norms.
“The period for taxing unsold inventory has been extended up to two years. This is a welcome move and will boost the housing sector as currently there are around 85,000 ready units (of 6.73 lakh unsold units) which are unsold across the top 7 cities of India,” said Anuj Puri of Anarock Property Consultants.
Not just Puri but a host of property consultants admitted that there are about 6-7 lakh unsold units lying with real estate developers in top major cities due to poor demand. The proposal is expected to bring much-needed relief to such developers.
Income tax rebate
Though not directly related to the real estate sector, the proposal to offer a full income tax rebate to small and medium-scale taxpayers will have a significant effect on the property sector, according to experts.
The government in its interim budget proposed to give a full income tax rebate to those with net taxable income up to Rs 5 lakh.
Despite the announcements, several homebuyers and stakeholders in the real estate sector are unhappy.
There were no annoncements in relation to the non-banking financial corporation deadlock, which continues to trouble the real estate sector.
No announcement was made with regards to the creation of stressed fund asset for lakhs of pending housing projects. Many homebuyers in the country are upset over unfinished projects running into years due to promoters or developers running out of funds.
While the industry was expecting the government to announce a reduction in GST on the purchase of properties, no actual relief was proposed.
“All in all, it is a tame budget clearly configured as a crowd-pleasing electoral pitch and a cursory nod towards the ongoing challenges in the economy. This is no more and no less than what was expected,” added Puri.