Builders’ Getting Tax Holiday On Rental Income Will Augur Well For Indian Realty
In order to provide relief to India’s real estate developers who are reeling under the combined pressure of slow sales and increased tax burden, the government proposed to extend the period of exemption from levy of tax on notional rent on unsold units from one year to two years presenting the Interim Budget in February. The government may apply more measures to help builders spring out of the slowdown the sector has been dealing with from the past half a decade.
Citing sources, a PTI report says the finance ministry may offer builders a 10-year tax holiday on profits earned from rental housing while allowing deductions on expenses. Developers’ rental income is taxed under Section 23 of the Income Tax Act.
If the government goes ahead with the plan it would benefit the economy in general and the real estate sector in particular.
How tax holiday can help Indian realty
At the end of the financial year 2018-19 (FY19), there were over eight lakh unsold units lying across India’s nine key property markets, data available with PropTiger.com show. Data also show a large part of this inventory is older than two years. This means developers who are already under immense pressure because of their failure to sell the housing stock in a slow market also have to pay taxes on a notional income. The increased monetary burden has also restrained builders from launching new projects.
The government, on the other hand, is way behind the schedule as it pursues to provide housing to all by 2022. If it allowed tax holiday on rental income, it would incentivise renting. To use this opportunity, developers would unlock the existing housing stock for renting purposes. If that happens, the teeming millions that move to big cities every year in search of employment opportunities and to pursue higher education will have a larger and better rental stock at their disposal. With new units entering the rental market, monthly rental outgo might also be more affordable for the migrant population, a large part of which is forced to live in unorganised establishment due to price issues.
With housing inventory taken care of, developers would also be in a better position to launch new projects assist the government in meeting its housing-for-all target. This could turn into a win-win situation for all parties concerned.