Provisions for housing sector in Budget 2017 explained

Budget proposals are likely to lead to increased confidence among buyers

htestates@hindustantimes.com Hopes were running high for the prospective home buyers as the finance minister Arun Jaitley, presented the Union Budget 2017. With the recent reforms such as Real Estate Regulatory Authority (RERA), Benami Transactions (Prohibition) Act, the real estate sector is going through a transformation that would lead to improved transparency and higher confidence among home buyers. The finance minister has dished out a few delicacies for the home buyer in Budget 2017.

AFFORDABLE HOUSING

The finance minister announced the infrastructure status to affordable housing in his speech. This will help the developer to raise foreign currency debt under existing external commercial borrowings (ECB) guidelines, raise construction finance under priority lending from banks at a competitive rate and hence the overall costing of the project can be efficient. This in turn will enable developers to pass on the benefit of lower project cost to the common man.

PERIOD OF HOLDING REDUCED TO TWO YEARS

“In section 2 of the Income-tax Act, in clause (42A),— (a) in the third proviso [as inserted by section 3 of the Finance Act, 2016], after the words and brackets “a company (not being a share listed in a recognised stock exchange in India)”, the words “or an immovable property, being land or building or both,” shall be inserted with effect from the 1st day of April, 2018;” Period of holding in case of immovable property, being land / building has been proposed to be reduced from the existing 36 months to 24 months for capital gains computation. This will make making real estate an attractive investment option.

INDEXATION BASE SHIFTED FROM 1981 TO 2001

“In Section 55 of the Income-tax Act, with effect from 1st day of April 2018, Every state could have been encouraged to bring out its own land development policy for affordable housing. The issue of land availability has not been addressed Every affordable housing project that gets infrastructure status should have got a single window clearance. Something on the lines of all approvals in place within 90 days for such projects could have helped Act, with effect from the 1st day of April, 2018,— (A) in sub-section (1), in clause (b), in sub-clause (2), in item (i), for the figures, letters and words “1st day of April, 1981”, the figures, letters and words “1st day of April, 2001” shall be substituted; (B) in sub-section (2), in clause (b), for the figures, letters and words “1st day of April, 1981” wherever they occur, the figures, letters and words “1st day of April, 2001” shall be substituted.”

Cost of acquisition of an asset acquired before April 4, 2001 shall be allowed to be taken as fair market value as on April 1, 2001 and the cost of improvement shall include only those capital expenses which are incurred after April 1, 2001. This will result in a higher cost base to the seller and consequently reduced the tax burden.

The Budget did not address crucial aspects like the special economic zone (SEZ) policy or provide any further tax relief for SEZ. This is critical as globally free trade and low tax zones have a significance in creating the right environment for economic growth

Going forward, states should be encouraged to reduce or waive of stamp duty for such projects, at least for first time home buyers incurred after April 1, 2001. This will result in a higher cost base to the seller and consequently reduce the tax burden.

MORE OPTIONS FOR REINVESTMENT TO CLAIM TAX EXEMPTION

More options for reinvestment to claim tax exemption “In section 54EC of the Income tax Act, in sub-section (3), in the Explanation, in clause (ba), for the words and figures “the Companies Act, 1956” occurring at the end, the words and figures “the Companies Act, 1956; or any other bond notified by the Central Government in this behalf ” shall be substituted with effect from the 1st day of April, 2018.” Proceeds received from sale of property can be reinvested in any bond redeemable after three years (notified by the Central government in this behalf). This amount will also be eligible for exemption.

RESTRICTION ON SET OFF AGAINST LOSS ON INCOME

“(3A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head ‘Income from house property’ is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to set off such loss, to the extent the amount of the loss exceeds two lakh rupees, against income under the other head.”

It is proposed to restrict loss from house property with other heads of income to 2 lakh. This may impact a person who may have several properties and has let out properties to tenants.

A homebuyer will have reasons to savour the tax benefits extended as the government has made efforts in making real estate more attractive for the homebuyers who will now have increased confidence to make investments in real estate sector.

The authors are partner and senior manager and deputy manager with Deloitte Haskins and Sells LLP