Recommendations on behalf of CREDAI National for Union Budget 2021
Mumbai: The real Estate Sector has been under stress for more than 2 years. Economic uncertainty enforced by COVID 19 Pandemic has only made it worse for the sector. After battling for survival, the sector is slowly moving towards revival.
- Ensuring liquidity, access to funds & longer repayment cycles will aid developers and continuous supply required for achieving “Housing for All by 2022”
- Cheaper home loans, tax benefits on investments in housing shall boost demand
- Reforms in taxation related to affordable housing, Joint Development & Steps to promote Foreign investment are the need of the hour.
The recommendations are as follows-
1. Affordable Housing – Section 80 IBA
| Section | Present Provisions | Suggestions for Amendment |
| Section 80 IBA
Definition of affordable housing |
The definition of affordable housing comprises the following:
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Unit with carpet area as defined under RERA may be redefined as ‘that does not exceed 90 sqm in the metros and 120 sqm elsewhere.’
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| Time period
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Applicable to projects approved till March 31, 2020.
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The projects approved till March 31, 2023, be made eligible as a few days after a few days after the announcement for extension was made, a complete lockdown was announced due to COVID, thus disrupting the real estate operations and construction activities for almost 6 months. Thus, the extension of Sec 80 IBA given to real estate developers could not be utilized by them to its complete potential.
In order to make the scheme of “housing for all” to be successful, the time limit for approval of projects should be extended to March 31, 2023. |
2. Interest on Home Loan
| Section | Present Provisions | Suggestions for Amendment |
| Section 80 EE Deduction of interest on Home Loan
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An individual is allowed to avail a deduction of interest on the loan for the acquisition of a house. However, the deduction is allowed only on loans sanctioned between 1.4.2016 and 31.3.2017, and the amount not exceeding Rs. 50,000.
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The timeline for the loan may be extended to March 31, 2022, in line with Housing for All by 2022.
The limit of deduction allowed may be increased to Rs. 2 lakh and the limit of the loan be increased to 50 Lakhs and the stamp value of the residential house should be increased to Rs. 65 Lakhs. The measure would be an incentive for home buying and healthy growth of the Financial Sector’s balance sheet. |
| Section 24 (b) Deduction of housing loan interest
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The present limit for deduction of interest against “Rental income” under section 24(b) is INR 200,000 for self-occupied property.
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In the case of individuals, the interest in respect of first self-occupied property should be allowed without any limit.
Alternatively, the limit for deduction of interest should be increased to INR 5,00,000 in respect to the self-occupied property. This increase in interest deduction will encourage the homebuyers to invest in the real estate and increase the demand in the market. |
3. Principal Repayment of Housing Loan – Deduction for Principal Repayment of Housing Loan / Cost of first Self Occupied House Property
As per the present provision, the ceiling of a deduction for principal repayment of housing loan is INR 150,000 Further, the above deduction is clubbed with other tax saving instruments.
We suggest that the deduction under section 80C for principal repayment of housing loans should be increased from the existing limit of INR 150,000. The deduction for principal repayment of housing loans can be considered for a separate or standalone exemption. This increase in the deduction for principal repayment of housing loans will encourage the home buyers to invest in homes.
4. Real Estate Investment Trust (REIT)
a) Section 80 C Relaxation in provisions related to REITs – REITs are one way of solving the liquidity problem in real estate. At the same time, it offers the investors a choice to diversify their portfolio. At present, there is no provision. We suggest an extension of exemption under Section 80 C to investments in REITs starting with Rs. 50,000.
b) Section 2(42A) Period of holding of REIT/InvIT units to qualify as a long-term capital asset – Currently the Units of REITs need to be held for 36 months to make them a long-term capital asset eligible for a lower tax rate. We suggest the period of holding for units of REIT to qualify as a long-term capital asset should be reduced to 12 months (as applicable for listed shares) to qualify as a long-term capital asset, in place of 3 years. This will lead to faster adoption of REITs and bring the units held in REITs at par with investment in listed securities. The very idea of having a compulsory listing of REIT/InvIT is to create liquidity to encourage small savings into the real estate/infrastructure sector.
5. Joint Development Agreements
| Section | Present Provisions | Suggestions for Amendment |
| Provisions relating to Joint Development Agreements
Section 45 r.w.s. 2(47)
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Section 2(47) defines the transfer of a capital asset to include, inter-alia, any transaction that immovable property allows possession to be taken or retained under a contract referred to in section 53A of the Transfer of Property Act, 1882.
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Provisions of Section 45(5A) of the Act should be made applicable to all the assesses owning land and should not be restricted to only individuals and HUFs.
The amended provisions should be applied irrespective of whether the land-owner owns the land as a capital asset & to all types of JDA arrangement including area share or revenue share. Further, the tax liability should arise in a manner similar to the mechanism provided u/s 45(2) with respect to the capital asset converted into stock in trade.
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| Section 2(31) JDA considered as an Association of Persons (‘AOP’)
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It is recommended that suitable instructions/guidelines/rules be issued for the tax treatment of JDAs after obtaining the comments from the stakeholders to avoid litigation.
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