The biggest impetus to the real estate sector in the Union Budget 2020, which was delivered by Finance Minister Nirmala Sitharaman in the Parliament on February 1, came in the form of relaxations offered in affordable housing to home buyers and developers alike. The policies announced by the Finance Minister are perfectly in consonance with Prime Minister Narendra Modi's ambitious vision of 'Housing for All by 2022′.
In the Budget 2020, the Union government extended the benefit of availing additional deduction of up to Rs 1.50 lakh for interest paid on loans for affordable houses by an additional one year till 31 March 2021. The government defines a maximum ceiling value of Rs 45 lakh with area of 90 square meters in non-metropolitan areas and 60 square meters in metropolitan areas for an affordable house. The deduction had been announced for the first time by FM Sitharaman in her budget speech of 2019, which was allowed for housing loans sanctioned on or before 31 March 2020.
The Central government has further tried to incentivise the affordable housing sector by providing a one-year tax holiday extension to real estate developers in the Union Budget 2020. Earlier, the government had announced that a tax holiday will be provided to real estate developers of affordable housing projects till 31 March 2020. This step will certainly boost the supply of affordable houses and promote it.
What would further indirectly boost the affordable housing sector is the government's decision to ease taxes on income from capital gains in terms of transactions in real estate. Earlier, while computing taxes on income from capital gains in real estate transactions, if the consideration value was less than the prevalent circle rate by more than five per cent, the difference was counted as income in the hands of the buyer as well as the seller. To minimize hardships in real estate transactions, the Central government has now increased the limit to 10 per cent from the prevalent rate of 5 per cent. This measure will impact values of land transactions whose ripple effect will result in delivery of high-quality affordable houses within the ceiling of Rs 45 lakh.
The Finance Minister also announced towards tax concessions on investments by sovereign wealth funds and to make foreign funds available in the country at lower cost.
The Central government has decided to provide 100 per cent exemption on income from interest, dividends and capital gains on investments made by sovereign wealth funds in infrastructure in India. The deadline of 31 March 2024 has been set for availing this benefit with a minimum lock-in period of three years. This measure is expected to boost infrastructure, thereby creating jobs, which will result in a greater pool of homebuyers in the affordable housing sector.
The pool of affordable homebuyers is further set to increase by way of job creation through foreign direct investment which the Central government has sought to improve. In the Budget 2020, the government extended the period of concessional withholding rate of five per cent under section 194LC for interest payment to non-residents in respect of funds borrowed and bonds issued up to 30 June 2023.
The government has simplified the personal income tax structure by significantly reducing rates for individual taxpayers through introduction of new slabs. For example, as against the prevalent rate of 20 per cent income tax for those earning between Rs 5 lakh to Rs 7.5 lakh per year, the new rate has been halved to 10 per cent. The introduction of highly reduced personal income tax rates will ease the burden of EMI repayment upon the salaried middle class. The money thus saved might prompt a large pool of salaried middle-income professionals to enter the home loan market with an eye on purchase of affordable houses.
The Central government's attempt to boost infrastructure in the country is also to set to create jobs over the next few years, which will thereby add to the demand for affordable houses. The Budget 2020 announced the preparation of a project preparation facility, involving young engineers, management graduates and University students from across the country, for infrastructure projects. Prior to the Union Budget 2020, the Central government had already announced a National Infrastructure Pipeline worth Rs 103 lakh crore consisting of more than 6,500 projects in various sectors.
Development of infrastructure on a scale as huge as this is expected to create new housing hubs for the salaried middle-class as a result of high level job creation. It augurs well for the affordable housing sector.
(By Pradeep Aggarwal, Founder & Chairman, Signature Global, and Chairman, National Council on Affordable Housing, ASSOCHAM)