Finally, affordable housing sector has been accorded infrastructure status giving a much-needed boost to slowdown-hit real estate sector. This long-awaited announcement is the need of hour to encourage investment in this segment. The Government offered tax reliefs for developers sitting on completed unsold inventories.
Stating that affordable housing is one of the thrust areas of tax proposals, Finance Minister Arun Jaitley said, “In my Budget proposals last year, I had announced a scheme for profit-linked income tax exemption for promoters of affordable housing scheme which has received a very good response.”
To make this scheme more attractive, Jaitley proposed certain changes in the scheme. “First of all, instead of built up area of 30 and 60 sq metre, the carpet area of 30 and 60 sq metre will be counted”.
Moreover, he said that the 30 sq metre limit will apply only in case of municipal limits of four metropolitan cities while for the rest of the country, including in the peripheral areas of metros, limit of 60 sq metre will apply.
In order to be eligible, the scheme was to be completed in 3 years after commencement, he said, and proposed to extend this period to 5 years.
Explaining about what does it mean to companies and the consumer, CREDAI National president Getamber Anand says, “Getting infrastructure status means now realty companies involved in the affordable housing will be able to raise money through External Commercial Borrowings, and bonds at a much cheaper rates of 10 per cent as against current bank loan at 13-14 per cent. Moreover, banks will also incentivise low-cost housing by reducing interest rates and there could be longer loan repayment option.
“The real estate industry thanks the Government for understanding the need to enable efficient supply of housing stock in the country. Affordable Housing has been declared ‘Infrastructure’ with all its associated benefits. Additional refinance of Rs 20,000 crore from NHB and lower interest rates resulting from increased liquidity in the banking sector would add to the funds for the sector at lower costs to the ultimate consumer,” he added.
Post announcement realty stocks surged up to 20 per cent. While shares of DlF zoomed 7.81 per cent, Godrej Properties surged 5.43 per cent, HDIl jumped 5.2 per cent, Oberoi Realty (4.48 per cent) and Prestige Estates Projects (4 per cent) on BSE. The BSE realty index was trading higher by 3.58 per cent during the late afternoon trade.
The National Housing Bank will refinance individual housing loans of about Rs 20,000 crore in 2017-18. To promote affordable homes, the Government also proposed to amend the Section 80-IBA, relaxing the condition of period of completion of the project for claiming deduction from the current three years to 5 years.
“While we are yet to read the fine print, this is indeed an important step to promote access to priority lending thereby spurring supply of low-cost housing units across various cities in India. Relaxation in area measurement as well as completion timelines to seek tax exemption is welcome steps. Further, the Government has also increased allocation under the PMAY scheme. This will encourage homebuyers and further boost participation from the Private player,” said CBRE Chairman - India and South East Asia Anshuman Magazine.
The Finance Minister also proposed to make a number of changes in the capital gain taxation provisions in respect of land and building. “The holding period for considering gain from immovable property to be long term is 3 years now. This is proposed to be reduced to 2 years. Also, the base year for indexation is proposed to be shifted from April 1, 1981 to April 1, 2001 for all classes of assets including immovable property,” he said.
“This move will significantly reduce the capital gain tax liability while encouraging the mobility of assets. We also plan to extend the basket of financial instruments in which the capital gains can be invested without payment of tax,” Jaitley said.
For Joint Development Agreement signed for development of property, he said the liability to pay capital gain tax will arise in the year the project is completed.
The Government also announced tax sops for builders sitting on huge unsold stocks amid multi-year slowdown in the real estate sector, particularly housing segment.