The real estate sector has been expecting a lot from budgets in the past 3-4 years. One of the most prominent asks and one that has been pending for a while is “industry” status for the sector. An announcement like this would of course be beneficial for all stakeholders and participants in the sector, for various reasons.
Therefore, like every year, this year too, almost all stakeholders including developers, home buyers, REITs, investment funds, corporate occupiers are looking forward to Finance Minister Nirmala Sitharaman’s Budget 2022 announcements, hoping for some positive changes/amendments that can impact the sector in a much needed, positive way.
Here are some of the key asks from across the real estate community:
Modification of the SEZ Act
A possible relook at the 2005 Act is much-needed after the government adopted the sunset clause and said that only those units that started production on or before June 30, 2020, would be granted a phased income tax holiday for 15 years. With the implementation of a sunset clause, the future development potential for SEZ is under the scanner. For obvious reasons, SEZ developers, as well as occupiers, are vociferously demanding a modification of some of the very stringent clauses of the Act like the inability to sell goods in the domestic market, accepting INR payments, replacing positive net foreign exchange (NFE) clause with some new criterion.
Housing loan-related tax incentives
A request for increasing the tax deduction limit on interest paid for home loans from the current Rs 2 lakh per annum (under section 24B) has been a long pending wish from home buyers before every Budget. There are multiple ways to provide this relief, including, increasing this limit to at least Rs 3 lakh per annum (under the same section), by providing separate tax deduction (outside of 80C) for principal repayments, or by letting the home buyer claim tax rebate on the entire interest amount paid. Either or all of these would reduce the cost of financing of units for home buyers, thereby giving a thrust to the housing demand, especially with the already attractive home loan interest rates being offered today.
Input Tax Credit for developers
The current GST rate applicable on under-construction residential units is 5 percent as well as GST on cement and steel is 28 percent and 18 percent respectively. With developers not allowed to claim Input Tax Credit (ITC) against these tax outflows, construction costs will continue to go with prices of these commodities only expected to increase. This tax incentive enforcement has also been long pending over the years and the developer community is hoping it gets addressed in this year’s Budget. This may be one of the major reforms given the large contribution of the housing segment to the overall market size of real estate in India.
Reduction in holding period of REITs for long-term capital gains
Currently, investments in REIT units turn long-term only on holding the investment for a minimum of 3 years as against a period of 12-months for investment in listed securities. To ensure a level playing field and thereby increase the retail participation in REITs, the government should consider reducing this holding period for REITs to 1 year immediately.
In case Budget 2022 can cater to some or all of these expectations from various stakeholders in the industry, the real estate sector can regain the much-required confidence and get the growth momentum that has been largely missing for the last 12-24 months.
The author is Partner and Head – Real Estate, Building and Construction, KPMG in India. Vies are personal.