Representational image. Express photo by Abhinav Saha
By Hemal Mehta, Neha Rupani and Sagar Tirodka
At a time the dark clouds of an economy struggling with record low GDP growth are looming over the country, India’s real estate sector is hoping for a silver lining when Union Finance Minister Nirmala Sitharaman presents her second Union Budget on February 1, 2020.
Here are some expectations of homebuyers from the Finance Minister:
Rationalisation of interest rates on housing loans: High interest rates act as a deterrent to common homebuyers. In order to spur the demand for purchase, the government could consider rationalising interest rates to a level which is affordable to the common homebuyer.
Tax benefit for owners of more homes: At present, income from house property for one self-occupied property is not chargeable to tax. Further, if a house property remains vacant as it could not be occupied due to reasons of employment or of business carried out at any other place, is also not charged tax. Any additional property is considered as deemed to be let–out (even if vacant) and tax is charged on the notional rent. The benefits of claiming nil rental income should be extended to additional vacant properties in order to encourage investment.
Rollback of notional rent on unsold inventory: Tax is levied on notional rent on unsold inventory of developers after one year from the end of financial year in which completion certificate is received. Due to overall stagnation in the economy, developers are already struggling to offload their present inventory. This results in increasing the overall cost of developers, which in turn is passed on to the homebuyer.
Enhancing the deduction from rental income: In order to encourage homebuyers and match with the increasing cost of borrowing and construction, allowing a higher threshold of standard deduction from the current 30 percent to say 40 or 50 percent will enable homebuyers to recover their cost to match the general inflation in the economy.
Increase in interest deduction from income from house property: At present, interest deduction under the head income from house property is capped at Rs 2 lakh. The current interest rate for borrowings prevailing in the market may not match up to Rs 2 lakh of deduction. Further, carried forward loss under the head income from house property cannot be set-off against other heads of income. The cap on interest deduction should be increased to enable a homebuyer to claim deduction for the entire interest without any limit. Additionally, carried forward loss under the head income from house properties should be allowed to be set-off against all heads of income.
Extension of interest subvention available for affordable housing to “low-cost housing or “compact housing”: Currently, additional deduction of Rs 1.5 lakh is available for interest on loan taken for affordable housing i.e. houses valued up to Rs 45 lakh. The same benefit should be extended to “low-cost housing” or “compact housing” for houses valued up to Rs 1 crore to Rs 2 crore in metro cities, and Rs 75 lakh to Rs 1 crore in other areas.
Legal support to the common homebuyer: The government recently amended the Insolvency and Bankruptcy Code 2016 introducing a threshold of minimum 100 or 10 percent of allottees in a project or class of investors required, who can approach the NCLT in order to start the liquidation process against a defaulting developer. The Budget should rationalise the minimum threshold and introduce measures to avoid genuine hardship to the single homebuyer.
More than AIF needed: In November 2019, the government announced its plan to launch an alternative investment fund of Rs 25,000 crores for affordable and mid-sized housing to unlock the demand-supply mismatch. Real estate projects that meet laid down criteria will receive the funding, wherein one of the criteria is net worth positive projects. Projects which have the potential to be revived but have negative net worth, will not be able to access funding from AIF. The concerns of a homebuyer, who has advanced money to such developers, still needs to be addressed.
Other factors such as input tax credit in GST, lowering cost of land acquisition, rationalisation of taxation on REITs, stamp duty, a relook at funding under PMAY scheme will pave the way for healthier demand, competitive pricing and encourage investments in the housing sector.
Hemal Mehta is a Partner, Deloitte India. Neha Rupani is Senior Manager and Sagar Tirodka is Deputy Manager with Deloitte Haskins and Sells LLP