Tax Relief

PMAY rule change to Rs 5 lakh tax break on curiosity on house loans – property expectations for funds 2022

Budget 2022: The real estate sector needs several measures from the government to put it back on the path to recovery and growth.

The real estate industry was already in a consolidation phase before the outbreak of the pandemic. In recent quarters, the sector has shown signs of some recovery due to the low interest rate regime, macroeconomic pickup and some policy support from the government. However, the sector needs several government actions to put it back on the path to recovery and growth.

The real estate sector is just too important to the country’s overall economic growth as it is one of the largest contributors to GDP with almost 6% coming from real estate. In addition, a number of related sectors such as steel and cement are directly affected by the dynamics in the real estate sector. This is also a massive employment generator especially in semi-skilled and unskilled segments. In the forthcoming EU budget, the sector looks forward to certain policies and regulations that can boost growth by supporting both the supply and demand side of real estate.

Income tax breaks for homebuyers

The investable surplus in people’s hands has shrunk. To encourage demand, the government can stimulate home buyers by raising the tax break on home loan interest to Rs 5 lakh, which is currently set at Rs 2 lakh. In this context, consideration can also be given to revising income tax rates in order to offer small and medium-sized businesses a financial cushion for buying their own homes. For sustainable real estate growth, the pull of demand must be created.

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Because of the pandemic, the WHF culture has started. This has increased the need for homeowners to upgrade from 1BHK to 2BHK or from 2BHK to 3BHK. In order to make this possible, revaluation should be allowed in PMAY’s CLSS scheme. Under current regulations, homebuyers lose the 2% interest exemption they receive through the banks under the scheme.

GST reforms

The industry also anticipates that the 2021 budget will include GST adjustments, such as the reinstatement of the pre-tax credit. This will help reduce construction costs and, as a result, lower real estate prices. These measures will increase demand in the industry and help alleviate the current financial crisis. The cost of raw materials is one of the most important inputs in real estate.

Lowering the GST on commodities such as cement, steel, wood, finishing material, etc. would be of great help to the sector. This will help bring down the cost of finished properties and attract more buyers to the sector. It is important that the raw materials used in construction are treated as necessities of life, because housing is the basic need of human beings. The GST for all these materials must be set at a flat rate of 12%.

Support for coworking spaces

The income from the co-working spaces is currently attracting a TDS of around 10% percent. In the case of co-working spaces, however, the bulk of the receivables stem from the services provided by the owner and not from the room rental. Therefore, a reduction in TDS would be a welcome step for co-working spaces. Just recently, the venerable Prime Minister declared January 16 “National Start-up Day” and described the start-ups as the “backbone of the new India”. The new companies will rely heavily on co-working spaces to work with low operational costs. This segment needs all the support it can get from the government.

Insurance coverage for the leasing business

A whole new insurance system needs to be developed to cover business losses caused by law changes or force majeure. This will be critical to securing revenue-sharing rental business in the real estate sector. It covers a range of business sectors including shopping malls, offices, cinema halls, clubs, etc. Such companies undergo frequent disruptions that are far beyond their control and totally outside of their scope of operations. An insurance scheme can mitigate such losses and help sustain business in this sector, for which the appropriate premium can be charged.

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Expanding coverage of affordable housing

The push towards affordable housing and the PMAY program have had a major impact in recent years. It is now important to further extend the scope by changing the classification both in terms of property value and allowable area. In the metropolitan area in particular, affordable housing must cover properties of at least Rs. 1 crore. Appropriate changes may be made in the classified areas and similar appropriate treatment of the non-metro properties. The Credit Linked Subsidy Scheme (CLSS) under PMAY must also be extended through FY2022-’23.

Industry status on the real estate sector

The real estate sector has long demanded industrial status. She expects the budget to live up to this claim again this year. The sector is constantly confronted with liquidity problems. Industry status will facilitate norms for access to credit on better terms and for longer periods. New sources of finance will lead to real estate, which will have a multiplier effect beyond the sector to the wider economy.

Node agency for central release

The need for “single window clearance” has long been felt in the real estate industry. A project requires multiple approvals from multiple authorities, causing delays and sometimes stopping projects in the middle of construction. This creates a huge irreversible loss for both the developer and home buyers. This can be largely remedied if a focal point is appointed for all necessary clearances and approvals.

Green building incentives

India aims to become a carbon neutral economy by 2070. The real estate industry can be a leader in this regard. The use of green building materials such as fly ash bricks, precast concrete panels, reclaimed plastic, reclaimed steel and other innovative materials can help the country combat the threat of climate change and achieve carbon neutrality. However, switching from conventional material to green building material could be a costly decision and require government support in the form of subsidies and tax exemptions. The union budget 2022 can be the starting point for such promotion of the real estate industry.

(By Pradeep Misra, CMD-REPL. Views expressed are personal)

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