Budget 2022: Need for incentives, tax sops for prospective homebuyers, investors

While the real estate sector has gained most of the lost ground, most of the segments continue to trail below the pre-Covid levels.

Economic activity is in full gear, with GDP growth pegged at 9.2% for 2021-22, and high-frequency economic indicators reflect encouraging trends. Keeping growth in focus, RBI has maintained an accommodative stance, keeping interest rates low. The government’s timely intervention in the form of fiscal and non-fiscal incentives helped the real estate market to emerge stronger from the adverse impact of the pandemic.

While the real estate sector has gained most of the lost ground, most of the segments — especially housing and the commercial office — continue to trail below the pre-Covid levels. Hence, there is a need for the continuation and introduction of tax sops and incentives to prospective homebuyers, investors, and developers at large.

  

 

Accord ‘Industry status’ to the real estate sector

The long-standing demand of according ‘industry’ status to the overall real estate sector remains partially fulfilled. Currently, only affordable housing is accorded with ‘infrastructure’ status. Availability of low-cost credit through infrastructure status and easy access to varied lucrative financing options will directly benefit the sector.

Having strong forward and backward linkages, the present real estate ecosystem is ripe to leverage maximum benefits out of this move while fueling investment and employment.

Tax benefits for buildings contributing to ‘Net Zero’ targets

The budget can provide for tax benefits in the form of time-bound exemption of profits from taxability, other tax incentives for developers engaged in developing sustainable commercial & residential buildings. The need for high performance buildings, replete with wellness and energy-saving measures in a bid to achieve sustainability and net carbon targets cannot be over-emphasized. Future buildings will factor in aspects like improving natural lighting, providing green roofs and using renewable sources of energy, sewage treatment, rainwater harvesting, etc to upgrade the way we live and work.

Waiver of GST on under-construction projects

At a time, when the residential sector has shown strong resilience and is emerging from the adverse impact of Covid-19, a time-bound waiver of GST on under-construction projects will provide a great fillip in propelling sales. This will help developers in offloading their inventory and tiding over their liquidity gap amplified by the market downturn. Currently, the GST for under-construction affordable housing units is 1%, while for other projects it is 5%, without an input tax credit.

Allowing input tax credit on the calculation of GST payable in real estate

Alternatively, the government can restore the input tax credit (ITC) on raw materials. While it has reduced the GST burden by rationalizing the effective rate on residential housing projects, the unavailability of ITC to developers has resulted in a minimal reduction in prices to the home buyers, largely offsetting the GST reduction measure. A reduction in the GST of key construction raw materials like cement and steel can also arrest the price surge, thereby benefiting the end buyers.

Extension of Credit Linked Subsidy Scheme (CLSS) for EWS/LIG/MIG

While CLSS for MIG was available until 31st March 2021, a similar benefit to EWS and LIG segments are available until 31st March 2022. A time extension of this benefit across all these income segments for an additional year will give affordable and mid-income homebuyers the financial elbow room to affect their purchase by availing the subsidy. At the same, the government should positively review the area and ticket-size thresholds under MIG to expand the coverage of beneficiaries.

Setting up of a special situations fund to support real estate projects

Several realty projects faced significant delays in execution and delivery owing to a liquidity crunch in the wake of the pandemic. There is a need for establishing a dedicated investment fund to provide financial aid to eligible projects and support them in line with the SWAMIH fund.

Additional Recommendations:

Continuation of benefit u/s 80EEA to avail additional INR 150,000 interest deduction on home loans for first time homebuyers until 31st March 2023

Tax holiday for developers on affordable housing projects u/s 80IBA to be extended until March 2023

Extension of tax relief to developers and homebuyers – reduction in the differential between circle rate and transaction value to 20% for another financial year

Separate provision allowing deduction of principal repayment (currently forming part of 80C deduction) to incentivize homebuyers through higher tax benefits

Removal of restriction on setting off loss from house property against other heads of income at INR 2 lakh

Reduction in REITs holding period to one year for the purpose of long-term capital gains and to bring in line with other listed securities

Lowering of the GST applicable for commercial properties developed for leasing, currently at 18% on the rental income.

Source::: THE FINANCIAL EXPRESS,  dated 19/01/2022.