Budget 2020: What’s there for the Real Estate Sector?

[Akash Kumar Prasad is a fourth-year student at NALSAR University of Law, Hyderabad]

The Union Budget 2020-21 was presented on February 1, 2020 by the Finance Minister Nirmala Sitharaman. Amidst sharp decline in the economy, the Union Budget was awaited with great expectations to foster growth in the real estate sector. However, with no major announcement for catalysing the same, the Budget fell short of the expectations of the real estate and construction industry. For instance, the shares of leading real estate companies declined after the Budget failed to announce any specific beneficial measure for the industry.

The proposed cuts in personal taxes and tax sops for affordable housing, which were expected to increase purchasing capacity, failed to stimulate the stocks and did not result in any meaningful boost in the real estate shares. The industry was hoping that the Budget would enhance the demand for housing, but the new tax regime which implies no tax benefit on interest and principal for housing loans has turned out to be an let-down for the industry. Nevertheless, there are certain things in box for the sector in the Budget.

Housing for all

An annual deduction of one lakh fifty thousand rupees granted on the interest paid on loans taken to achieve affordable housing, which was supposed to be allowed on loans sanctioned on or before March 31, 2020 only, was proposed by the Finance Minister to be extended for another year in order to incentivise the scheme. Further, an extension of another year has also been granted on tax holiday that is provided on the profits made by the developers of such projects that are approved by March 31, 2020.

Infrastructural projects

The initial corpus of Rs. 103 lakh crore set aside on the December 31 last year on account of the National Infrastructure Pipeline has been increased by Rs. 100 lakh crore which would be invested on infrastructure over the course of next five years that would comprise 6500 projects ranging from housing to transportation and to other similar projects.

Concessions in tax rates and exemptions for co-operatives

Currently, co-operatives are taxed at 30% with surcharge and cess. The Finance Minister proposes that, in order to bring parity between the co-operatives and the corporates, no exemptions or deductions would be granted to co-operatives, but a taxation rate of 22% plus 10% surcharge and 4% cess would apply. In addition, just like the companies which are being exempted from the Minimum Alternate Tax (MAT) under the new tax regime, exemption from the Alternate Minimum Tax (ALT) has been proposed for the co-operatives.

Non-banking financial companies (NBFCs)

To qualify for debt recovery under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, the limit has been reduced to an asset size of Rs 100 crore from Rs 500 crore and, in cases of loan amounts, it has been reduced to Rs 50 lakh from Rs 1 crore.

Conclusion

In totality, these are steps in the right direction, but the Budget 2020 in its entirety does not have much bearing on real estate and continues to focus on urban infrastructure. There are many specific areas wherein announcements could have been made to benefit the real estate sector but were conveniently overlooked. Under section 24 of the Income Tax Act, 1961, a hike in the tax rebate of Rs 2 lakh on housing loan interest rates could have enhanced the demand for housing amongst the middle class, but the Finance Ministry failed to take it into consideration and made no announcements regarding it. Neither was there any discussion regarding project delays, which is an alarming concern for the sector, nor did the Budget announce anything pertaining to implementation of land reforms. Further, the Ministry missed on an opportunity to attract more foreign investors and simplify the approval process of real estate projects, which they could have achieved by updating the existing outmoded land records system. The Budget also does not propose any major incentives to boost sales and has little to offer to resolve the liquidity crunch with regards the housing sector. Nothing either has been done to enhance the loans considerably so as to attract the homebuyers’ sentiment.

Akash Kumar Prasad

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