The real
estate industry in India has emerged as one of the most vibrant
sectors in the country, providing jobs to millions. The sector plays an
important role not only in providing shelter to people, but also in rapid
urbanization, which is a key to speeding up economic growth in the country.
But the sector, in the last couple of years, was not given its due in the Union
Budget. Real estate developers associations have prepared a number of wish
lists to achieve a higher growth in the sector.
The National Real Estate Development Council (NAREDCO) made a
number of recommendations in this regard to the ministry of finance and the
ministry of housing and urban poverty alleviation for inclusion in the Union
Budget 2012-13, with a view to accelerate housing development in the country.
Declare housing as infrastructure and bring it under Section 80IA of
Income Tax (I-T ) Act:
This will enable developers and housing finance institutions to raise funds at
low rate of interest from domestic and foreign markets ,which,at the moment,is
confined to Indian banks and public equities at a very high rate of
interest.This will also incentivize developers by bringing down their income
tax liability. Most countries, and the world Bank treat housing as
infrastructure.
Special incentive to developers to undertake construction of smaller houses
under Section 80IB (10) of IT Act:
More than 90% of the shortage in housing is in the category of smaller-size
houses (300-1 ,200 sq ft built-up area). Under Section 80IB (10) of I-T Act
1961, there used to be an incentive for 100% deduction of profits derived from
the construction of housing projects up to 1,000 sq ft built-up area in Mumbai
and Delhi,and up to 1,500 sq ft built-up area at other places.
This was withdrawn through Finance Act 2009.As this was a big incentive for developers
to construct smaller-size housing units to suit the requirements of low- and
medium-income households, it has been suggested that this provision should be
reintroduced and 100% deduction of profits derived from constructing housing
units up to 1,200 sq ft built-up area be allowed. This will go a long way in
addressing the housing requirement of LIG and MIG categories .
Increase in deduction limit on account of interest payment on home loan from
Rs 1.5 lakh to Rs 3 lakh under Section 24 of I-T Act 1961:
Deduction of Rs 1.5 lakh, paid as interest on home loan, was introduced through
Finance Act 2001,and made effective from April 1, 2002. Before 2001, 100% of
interest paid on home loan used to be deducted. Ten years down the line, merely
on the basis of cost inflation indexation, Rs 1.5 lakh of 2001 would be close
to Rs 3 lakh in 2012.
Also, the indexed cost of Rs 20 lakh property in 2001 would be around Rs 40
lakh in 2012.Thus,merely on the basis of cost indexation,there is a strong case
to increase the deduction limit, on account of interest payment on home loan,
from Rs 1.5 lakh to Rs 3 lakh.
Increase
in exemption limit of rental income under Section 24 (a) of I-T Act 1961:
Supply of rental
housing in the market is insignificant because of the low rate of return on
high investment in housing property. As everyone can't own houses for various
reasons, 40-50 % of the total housing stock ought to be on rentals in the
market to meet the housing needs of the low-income group (LIG), who have no
capital to buy, and of floating population.
It has been
suggested to increase the deduction limit from 30%, presently available under
Section 24 (a),to 50% and levy tax only on 50% of the rental income. This is
necessary to incentivize people to build or buy houses for renting purposes
and, thus, increase the stock for rental housing.
Exemption from capital gain if proceed from transfer of a house property
is utilized for purchase of one or more houses or invested in capital gain bond
under Section 54 of I-T Act 1961:
As per the
provisions of Section 54 of I-T Act 1961, investment of capital gain from the
sale of a house, if made to purchase one house, is exempt from capital gain
tax. If capital gain is more than the cost of the house, tax is payable on the
balance.
It has been
suggested that where the entire capital gain is invested in purchase of
residential property (one or more) or invested in capital gain bond, it should
be exempted from capital gain tax. It will be a big incentive for investment in
housing.
Service tax on residential construction :
Imposition of 10%
service tax on residential construction, when the government is struggling to
meet the demand-supply gap in housing, especially in low-income groups, is a
deterrent , as it raises the cost by about 3%. Therefore, the service tax on
residential construction should be withdrawn .
Fund for housing:
This will be
helpful in creating a dedicated affordable housing fund, in line with
infrastructure fund, exclusively for developing housing of EWS & LIG. Also,
it has been suggested that this fund should have access to pension, insurance
and provident funds to meet the long-term investment requirement of the housing
sector.
Measures to down-market housing finance to poor sections of society:
It has also been
suggested for developing suitable mechanisms based on interest subsidy, funds
pooling and relaxation of mortgage requirements, as also instruments like micro
financing, community pooling, agricultural land mortgaging and annual installments,
etc,to meet the housing loan need of urban poor and rural households. There is
also a suggestion for graded scale of grant, subsidy and loan for social
housing to ensure that the lowest strata of poor get the maximum benefit. News has been originally published at Economic Times.
