There Is Only So Much Jaitley Can Do For Real Estate in Budget, Says Dhawan

Conferring of industry status upon the real estate sector, reduction in the Goods and Services Tax (GST) rates on property purchase, bringing real estate under the purview of the new tax regime, extending the holding period for the real estate investment trusts (Reits), launching more sops under affordable housing and promote foreign direct investment (FDI) are some of the many expectations the sector has from Finance Minister Arun Jaitley when he presents the Union Budget 2018-19 on February 1.

However, are these expectations realistic? Can Jaitley do all that for you?  As a matter of fact, the FM is not in an official position to meet some of the demands made by the sector. For instance, it is only the GST Council that may or may not decide to take real estate under the fold of the new tax regime. 

Keeping that into account, this is what we should actually look forward to when he makes his Budget speech on Thursday.

What to expect?

Various reforms, including demonetisation and the GST rollout, have adversely impacted the economy. This time, it is expected that businesses as well as individuals will be benefitted with better tax slabs.

“While in Budget 2017 a tax rate of 25 per cent was announced for corporates with turnover of less than Rs 50 crore, we hope the government extends this relief to corporates with a turnover of Rs 100 crore or less in the upcoming Budget,” says Ankur Dhawan, chief investment officer, PropTiger.com.

“Similarly, for income tax, I expect the starting slab to be raised from Rs 2.5 lakh to Rs 5 lakh. This will leave more income in the hand of individuals to spend, and positively impact growth. Also, I expect that policies are announced that could help create more jobs. This would also impact growth positively,” he adds.

While the stakeholders are asking the FM to address many issues in the sector, there are certain areas that actually need attention more than ever before.

The FM could provide respite to homebuyers by making changes in deduction of home-loan interest paid from income. The most important change will be to raise the cap from the current Rs 2 lakh to Rs 3 lakh, says Dhawan.

According to Dhawan, the FM must also increase the threshold for property value from Rs 50 lakh to Rs 75 lakh for first-time homebuyers for availing additional deduction of Rs 50,000 deduction on interest paid on home-loan installments.

As for the benefit of the developers, who are suffering from money crunch, the government must provide tax deduction even during construction period and not only on completion of property, says Dhawan.

Rental housing should be another focus area of the FM, says Dhawan. In 2017, investment in real estate for rental yield was negligible as the government capped the loss adjustment from rental income from property at Rs 2 lakh annually.

“Even if the government does not want to keep these losses uncapped, the limit should be increased from Rs 2 lakh to Rs 3 lakh in this Budget. Also, this cap should not be clubbed with the deduction of interest paid on home loan for self-use property,” says Dhawan.

What not to expect?

Before an industry status is awarded, the sector will have to scale a great many highs. It will have to become more transparent, stabilise and show signs of revival before the government decides to confer an industry status on it, opines Dhawan.

The same is true of bringing the sector under the GST ambit. The call, as we mentioned earlier, has to be taken by the GST council.

What is the way forward?

While the FM might announce certain tax deductions that could be beneficial for the middle class, the sector's revival, Dhawan says, “lies in its own hands".

“Once developers start to deliver, follow the rules of the real estate law in letter and spirits, consumer confidence will grow and transparency will prevail. This will give huge boost to sector," adds Dhawan.