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Ahmedabad Real Estate Review March-2016
Key Budget measures and their impact on realty sector
- Section 80-IBA: 100% deduction for profits to developers opting for flats up to 30 sq. meters in Chennai, Delhi, Kolkata or Mumbai and 60 Sq. Meters in other cities, approved during June 2016 to march 2019 and completed in three years. MAT apply.
- Exemption from service tax on construction of affordable houses up to 60 square meters under any scheme of the Central or State Government including PPP Schemes.
Effect on realty: The supply of flats up to 30 aq. Meters in Chennai, Delhi, Kolkata or Mumbai is only approx. 9,000 units led by MMR and NCR, while the supply of flats up to 60 sq. meters in 23 cities in India except the above are 1,63,722 units in total which is only 25% of their total supply. Thus this reform is not likely to have far reaching reforms. Source: Liases Foras
- Distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax, in respect of dividend distributed after the specified date.
Effect on realty: There had not been a single REIT listing in India despite a green signal last year. The primary reason is the ambiguity over the status of Dividend Distribution Tax (DDT). Now with the scrapping of DDT, REITS will be able to realize its full potential.
- Deduction for additional interest of Rs 50,000 per annum for loans upto Rs 35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed Rs 50 lakhs.
Effect on realty: The biggest hindrance to the scheme of Affordable housing is the availability of funds for the buyers. Unless the government incentivizes first home buyers, this will be a distant reality. The above scheme is a welcome move on two fronts. Firstly, the amount of interest exemption has been increased to Rs 2,50,000 and secondly, the upper limit of house cost has been increased to Rs 50 lakhs. So a larger number of fence-sitters will be encouraged to become genuine buyers.
- Budget has increased the time line for construction from three years to five years in Section 24, for claiming deduction
Effect on realty: Currently a tax deduction of Rs 2 lakh per year was allowed against payment of interest on home loans, if the house is acquired within three years of taking the loan. Delay in deliveries is a blatant practice in present and as a result buyers lose tax exemption – this is something they cannot foresee at the time of availing the home loan. But now the clause under Section 24 has been amended and the time line for construction form three years to five years. It is positive for buyers as with a realistic completion timeline, they can be hopeful of availing full tax exemption under this.
- Increase the limit of deduction of rent paid under section 80GG from Rs 24,000/- p.a. to Rs 60,000 p.a. to provide relief to those who live in rented houses.
Effect on realty: This will not have direct impact on the realty sector, but this will reduce the taxable component of the salary and the salaried class will have more income in their hands for consumption.
- Total outlay on roads and rails will be Rs 2.80 lakhs crore. 10,000 km of national highways in 2016-17 and 50,000 km state highways to be converted to NH roads.
- Extend excise duty exemption, presently available to Concrete Mix manufactured at site for use in construction work to Ready Mix Concrete.
Effect on realty: This is will have a positive bearing on the logistics. An upgraded road infrastructure will facilitate faster transfer of raw materials and thus reduce construction delays. On the other hand, extension of excise duty exemption to Ready Mix Concrete will lead to increased production and lower input costs.
- The government will re-launch its national land record digitization scheme and fund it with Rs 150 crore.
Effect on realty: Currently properties in most of the cities have a unique identification number for taxation purpose. However, once records are digitized and there are proper linkages established between registration, property taxes and titular records, chances of fraud and scams related to property will be very less. This will enhance accountability and transparency. This is in line with the Torrens system of land titling wherein there is a direct registration of title in a central registry based in identification of land parcels and ownership. Lack of clear land titles and title insurance in India makes it difficult for developers to acquire suitable land parcels and often results in long-drawn and expensive litigation for them.