In a bid to boost the slowdown-hit real estate sector, the government today announced infrastructure status to affordable housing to encourage investment in this segment and offered tax sops for developers sitting on completed unsold inventories.
“We propose to facilitate higher investment in affordable housing. Affordable housing will now be given infrastructure status, which will enable these projects to avail the associated benefits,” Finance Minister Arun Jaitley said in his Budget speech in Parliament today.
The National Housing Bank will refinance individual housing loans of about Rs 20,000 crore in 2017-18, he added.
Hailing the move to grant infrastructure status to affordable housing segment, experts said it will provide ample push for the sector as developers will now be able to get access to preferential and lower borrowing rates from banks.
Jaitley also announced a proposal to construct 1 crore houses for the homeless by 2019. The PM Awas Yojana allocation has been raised to Rs 23,000 crore, from Rs 15,000 crore, he said.
“We will complete 1,00,00,000 houses by 2019 for houseless and those living in kaccha houses,” Jaitley said.
Highlighting the lending rate reduction by banks after demonetization, Jaitley said, “Thanks to the surplus liquidity created by demonetisation, the Banks have already started reducing their lending rates, including those for housing. In addition, interest subvention for housing loans has also been announced by the Honourable Prime Minister.”
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.
Stating that affordable housing is one of the thrust area of tax proposals, he 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 meter, the carpet area of 30 and 60 sq meter will be counted".
Moreover, Jaitley said that the 30 sq meter 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 meter 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.
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.
"At present, the houses which are unoccupied after getting completion certificates are subjected to tax on notional rental income. For builders for whom constructed buildings are stock-in-trade, I propose to apply this rule only after one year of the end of the year in which completion certificate is received so that they get some breathing time for liquidating their inventory," Jaitley said.
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.
Stating that the new capital for Andhra Pradesh is being constructed by land-pooling mechanism without use of the Land Acquisition Act, Jaitley proposed to exempt from capital gain tax, persons holding land on June 2, 2014, the date on which the state was reorganised, and whose land is being pooled for creation of capital city under the government scheme.
The proposals announced in the budget were welcomed by experts who believe the move will provide ample push for the sector.
"We must appreciate the fact that the government is very serious on the mission of housing for all and in the same light we have seen some extremely positive announcements in the budget today. Affordable housing getting infrastructure status will enable efficient supply of housing stock in the country and provide benefits associated with it," CREDAI national president Getamber Anand said.
PropEquity CEO and Founder Samir Jasuja said, "One of the key demand of the real estate sector has been to get industry status to get preferential and lower borrowing rates from banks. This announcement will surely provide ample push for the affordable housing sector in India, a key initiative under housing for all."
Commenting on the Budget, Tata Housing Managing Director and CEO Brotin Banerjee said, "Easy and dedicated access to institutional financing, higher limit on external commercial borrowings will attract more investments and assure sustained growth of affordable housing in India, making it the core driving segment for real estate."
"On the other hand, long term financing at lower rates will reduce costs of construction for developers allowing them to pass on benefits to consumers. The new status will increase the resource allocation for the sector, catalysing housing supply and reducing the supply gap," he said.