- FDI in Real Estate - requirement of the built up area and capital conditions reduced from 50000 square metres to 20000 square metres and from USD 10 million to USD 5 million respectively with a three year post completion lock in. Moreover the projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built up area and capitalisation requirements, with the condition of three year lock-in. This is expected to encourage investments in real estate sector, especially in low cost housing projects and would be positive for companies engaged in low cost housing projects.
- Tax pass through for Real Estate Investment Trust (REITS)
- National Housing Bank is allocated with a sum of Rs 4000 crore with a view to increase the flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment.
- Slum development in included in the list of Corporate Social Responsibility (CSR) activities to encourage the private sector to contribute more towards this activity.
- Allocation for Rural Housing Fund (set up through the National Housing Bank) increased to Rs 8000 crore compared to a allocation of Rs 6000 crore in 2013-14 budget and Rs 4000 crore in 2012-13 budget.
- Urban renewal - Five hundred habitations should be supported to renew their infrastructure and services by harnessing private capital and expertise through PPPs in the next 10 years.
- The deduction limit on account of interest on home loan in respect of self occupied house property u/s 24 of IT Act is increased to Rs 2 lakh from current Rs 1.5 lakh. In 2013-14 budget an additional deduction of interest of upto Rs 100000 in addition to the current Rs 1.5 lakh of deduction u/s 24 of IT Act is provided for home loan for first home from a bank or a housing finance corporation during the period 1.4.2013 to 31.3.2014 provided the loan is upto Rs 2500000, the value of the residential property is not more than Rs 40 lakh.
- Increase in personal income tax excemption limit by Rs 50000 to Rs 2.5 lakh in case of individual tax payer below age of 60 years and to Rs 3 lakh in case of senior citizens.
- Investment limit under Sec 80C of IT Act increased to Rs 1.5 lakh from Rs 1 lakh.
- To avoid disputes of classification between two categories i.e. Category ‘B’ and Category ‘C’ of Rule 2A of the Service Tax (Determination of Value) Rules, 2006, of works contracts are proposed to be merged into one single category, with percentage of service portion as 70%; this change will come into effect from 1st October, 2014.
Infrastructure status should be given for development of an integrated township and group housing on area more than 10 acres involving provision of residential, educational, medical, community, commercial or institutional buildings and creation of required facilities including roads, water supply, water treatment, sanitation and sewerage systems and solid waste treatment and management systems.
Industry status to real estate development
Provisions of section 80IB (10) be revived in the same existing format and project funding under this sector may be treated as “Priority lending” by banks and financial institution. Income tax deduction u/s 80IB (10) available to undertakings developing housing projects is for projects approved on or before 31st day of March, 2008. As this date has not been extended, provisions of this section have ceased to exist after 31st day of March 2013.
For calculation of benefits u/s 35AD sub-section (5)(ac) & (5)(ad) the Cost of land as well as building construction cost should be made part of capital expenditure so as to incentivize developer to undertake construction of social housing .
The tax rebate under 80C of IT Act should be increase to 2 lakh from current Rs 1 lakh and out of that Rs 2 lakh, there should be exclusivity of Rs 1 lakh for payment of principal borrowed for the purchase of a residential house. This will help in boosting housing stock. A separate limit for payment towards purchase of a house or repayment of principal on housing loan was available earlier u/s 88.
Tax deductions u/s 80CCF upto Rs 20000 for subscription/deposit in long term infrastructure bonds should be increased to Rs 1 lakh. This will help infrastructure development.
Section 43CA, inserted by Finance Act 2013, on lines of Section 50C, provides for considering valuation assessed or assessable by any authority of State Govt. for the purpose of payment of Stamp Duty as the value of consideration received or accruing as a result of transfer of an asset being land or building or both, by the assessee.
In all fairness the actual sale value should only be the basis for computing tax on profit and gain from land and building assets and not the notional income. In real terms, the provision u/s 43CA will create lot of harassment to the real estate developers and may become big deterrent. In view of the above, it is suggested that the new section 43CA be dropped all together. In case it is not possible to agree to the above, primary market transactions should at least be kept out of its purview.
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. 1.5 lakh should be raised to Rs. 3 lakh for owner occupied houses. Also, three 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.
Section 2(47) of IT Act be amended to provide that in case of a JDA between land owner and developer, the profit or gain from the transfer of land under a contract referred to in section 53A of TP Act 1882 will be deemed completed only on completion of the development project or when share of revenue from the sale of the property or share of built-up area, on completion of the project, is received by the land owner. A suitable section under Chapter IV Section 45 - Computation of Income from Capital Gains be added to deal with Capital Gain in Joint Development Agreements.
Provision section 194I-A be done away with, at least for primary market. Section 194-IA inserted by Finance Act 2013 makes transferee liable to deduct TDS at the rate of one percent of the value of consideration paid to transferor and deposit in Govt. treasury, where value of consideration exceeds Rs. fifty lakh.
Need clarification that stock held in trade of a developer will be out of the purview of section 22 of IT Act. Section 22 of IT Act provides for imposition of income tax on house property owned but not occupied by the assessee on notional annual letting value (ALV). Income Tax Department, in the case of a developer, has held that unsold housing stock held as stock in trade, after obtaining completion certificate, attracts provisions of section 22 of IT Act and developer is liable to pay income tax on ALV of the housing stock and the same has been up held by the Hon’ble High Court of Delhi.
Priority Sector lending to be extended for Home loans up to Rs 25lakh for rural and small and medium cities and Rs 35 lakh for metropolitan cities and Rs 50 lakh for mega cities.
Provisions of Section 54B and 54F should be made applicable to companies and partnership firms as well, to promote housing in urban areas.
Tax exemption u/s 54 for capital gain arising from sale of any capital asset as long as it is invested in acquiring on residential house should be removed and the scope be broadened by allowing the exemption as long as the entire capital gain is invested, whether in one or more houses.
Income from renting of properties is taxed at a flat rate of 10%.
Provision of rental housing on a large scale will require the services of Property Management Firms. In order to make property management a viable activity, income of firms which are wholly engaged in maintenance / repair and other specified management services for rental housing blocks may be brought within the ambit of Section 80 IB (10)and Section 10 (23G).
High cost of houses and high property taxes lead to a low rate of return (ROR) from rental housing making renting out an un-remunerative proposition. To improve the effective ROR from renting, it is suggested that the deduction from rental income under Section 24(a) be increased from 30% to 50%. This will promote rental housing. For women and Senior Citizen, the deduction could be 100%, keeping social requirements and empowerment of women in view.
ECBs be allowed in all spheres of housing and real estate development, as also in SEZ projects.
Deduction @ 15% in case of individual and HUFs and @ 20% in other cases out of gross rental income is very high and should be reduced to 7.5% in case of individuals and HUFs and 10% in other cases. This will also reduce the workload of the income tax department in processing the refund applications.
Govt. should consider a Dedicated Affordable Housing Fund in line with
Infrastructure Fund exclusively for construction of EWS / LIG housing and lend it to developers at low rate of interest.
Assess to Pension, Insurance and PF Funds. Banks may increase their allocation for housing from the present 3% to 5% of their incremental deposit. The additional 2% incremental allocation may be earmarked strictly for canalizing it through housing finance companies registered with NHB.
REMF approved by SEBI should be encouraged. In addition, REITs should also be encouraged and necessary guidelines finalized at the earliest. These together will boost supply of fund to housing and real estate sector and enable equity participants reap the fruits of high yielding real estate sector.
Dedicated Affordable Housing Fund.
Stock to watch
DLF, Ansal API, Godrej Properties, Prestige Estates
Changes in personal income tax such as increase in 80C investment limit for tax excemption, higher deduction limit on interest (u/s 24 IT ACT) on home loan for self occupied home along increase in personal income tax excemption limit by Rs 50000 are to boost the demand for housing. The relaxation in FDI norms will increase fund availability and help bridging the demand supply gap especially in affordable housing and EWS/LIG housing segment. With tax pass through incentive for REIT there will be more funds coming for the sector and the real estate developers saddled with heavy debts can see some pressure off by divestment/diluting some of its stake in the capital intensive commercial/hotel/ mall projects. Overall the budget is positive for the sector.