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Interim budget 2019 - Decoding Piyush Goyal gift to homebuyers and the real estate sector

As a part of the interim budget 2019, the government proposed a number of tax benefits that may lure people into home buying, even for the second time. It has also announced relief to real estate developers by giving a tax rebate for the development of affordable housing till the next fiscal year.

Interim Finance Minister Piyush Goyal has proposed multiple tax benefits for the real estate sector in the affordable housing category. The real estate sector that has seen oscillating trends and multi-year demand slowdown with sales stooping to record lows, the sector will benefit highly from the new policy changes.

A proposal was further announced to drop tax charges for two years on notional rent with regards to unsold properties.

If the latest statistics are to be considered, about 6-7 Lakh unsold units with developers are in 7-8 cities only. The benefit of rollover of capital gains up to Rs 2 crore under section 54 of the IT Act will now be available for investment in two houses from the present only one unit.

Here is what real estate gained in budget 2019:

• or making more homes available under affordable housing, the benefits under Section 80-IBA of the Income Tax Act is being extended for one more year, i.e. to the housing projects approved till 31st March 2020.
• For giving impetus to the real estate sector, FM proposed to extend the period of exemption from levy of tax on notional rent, on unsold inventories, from one year to two years, from the end of the year in which the project is completed.
• Currently, income tax on notional rent is payable if one has more than one self-occupied house. Considering the difficulty of the middle class having to maintain families at two locations on account of their job, children’s education, care of parents etc, Goyal proposed to exempt levy of income tax on notional rent on a second self-occupied house.
• The benefit of rollover of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two residential houses for a taxpayer having capital gains up to Rs 2 crore. This benefit can be availed once in a lifetime.
• The TDS threshold for deduction of tax on rent is proposed to be increased from Rs 1,80,000 to Rs 2,40,000 for providing relief to small taxpayers.
• Individual taxpayers having taxable annual income up to Rs 5 lakh will get a full tax rebate and therefore will not be required to pay any income tax.

What experts are saying

The general exemption of income tax up to Rs 5 lakh will benefit 3 crore taxpayers is likely to increase the demand for affordable and mid-income housing segments, JLL India’s Ramesh Nair said. Credai-MCHI’s Nayan Shah said overall this brings a lot of relief for the mid-income taxpayers and some long-awaited cheer to the real estate industry.

Credai’s Jaxay Shah said higher tax exemption will increase the purchasing power, while CBRE India’s Anshuman Magazine said the budget lays equal emphasis on key aspects such as ease of living, infrastructure, public health, technology and better living. Though implementation will be the key here, it is definitely a step in the right direction. Surendra Hiranandani of House of Hiranandani said the move to eliminate the tax on notional rent on a second self-occupied house will prep up overall demand substantially.

Zarin Daruwala, CEO, India, Standard Chartered Bank:

The Budget balances the objective of boosting growth while adhering to fiscal prudence in the medium term. The steps to provide impetus to the housing sector would have a multiplier effect on GDP growth given the sector’s significant economic linkages. Overall, the Budget is likely to boost domestic demand and support India’s economic outlook.

Rakesh Singh, CEO – Aditya Birla Finance Ltd:

The budget aims at increasing disposable income in the hands of middle-class taxpayers. The focus on taxation in the form of real estate sector SOPs such as removal of taxation on notional rent for people with second home, the benefit of rollover of increased capital gains up to 2 crores.

(Sources: https://bit.ly/2TxsJN2, https://bit.ly/2WEEKT4 )