In a bid to boost the housing sector which is facing a multi-year demand slowdown, the Narendra Modi Government on Friday proposed many tax sops to incentivise purchase of second homes, and also announced relief for realty firms by extending tax rebate on development of affordable housing until next fiscal and not charging tax for two years on notional rent of unsold units in the Interim Budget 2019-20 to revive the housing sector.
Presenting the Interim Budget for 2019-20, Union Finance Minister Piyush Goyal also proposed certain incentives to individuals’ taxpayers that would boost the real estate sector. The Budget announced that capital gains of up to Rs 2 crore could be rolled over for investment in two housing units from the current one unit only.
It also exempted tax on notional rent on a second self-occupied house. For developers, the extended benefits under Section 80-IBA of the Income Tax Act for one more year to housing projects. It applies to the projects approved till March 31, 2020. This proposal would boost supply of affordable housing. Under Section 80-IBA, 100 per cent deduction of profits is being provided to an assessee engaged in developing and building affordable housing projects subject to certain conditions related to carpet area among others.
To give impetus to the real estate sector, the Budget 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. I am proposing to exempt levy of income tax on notional rent on a second self-occupied house,” the Finance Minister said.
The Union Budget also proposed that the Tax Deduction at Source (TDS) threshold for deduction of tax on rent to be increased from Rs 1,80,000 to Rs 2,40,000 for providing relief to small taxpayers.
Experts said the income tax exemption will save over Rs 28,000 annually for a person with income of Rs 6 lakh. With two earning members in the house, the annual savings are likely to increase by Rs 56,000 annually. This will benefit the affordable housing sector where the loans are usually of around Rs 10 lakh and equated monthly installment (EMI) of nearly Rs 10,000.
Besides, the Government also announced that it has moved the GST Council to appoint a Group of Ministers to examine and make recommendations to reduce burden on home buyers. At present, GST on under-construction houses is 12 per cent and 8 per cent for affordable homes. There is no GST on completed housing units if the developer has received occupancy certificate. The move will also help to woo a large section of middle class voters and affordable housing segment ahead the 2019 Lok Sabha polls.
Earlier, a home owner could save the capital gains tax on a sold property by reinvesting the amount into another property. But the guidelines did not allow him to invest the amount into two properties. As per the Union Budget 2019-20 ,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 tax payer having capital gains up to 2 crore. This benefit can be availed once in a life time.
According to property consultants, there are about 6-7 lakh of unsold units with real estate developers in seven-eight major cities because of poor demand. This proposal will give a relief to those developers holding unsold units.
