Realty is where the royalty lies

Centre decides against extending 100 per cent tax benefit to prospective buyers

Buying a home may still remain a distant dream for thousands of prospective flat purchasers. Developers in the city warn of an imminent price hike as the Centre has decided against extending the income tax benefit under section 80-IB beyond March 31, 2007. The Finance Minister was silent on the issue.

Under the section, developers constructing residences up to 1,000 sqft in Mumbai and Delhi and 1,500 sqft in other cities could avail 100 per cent I-T exemption on his profits (which ranged between 30 to 50 per cent).

However, Delhi-based developers like Pradeep Jain of Parsvanath Group and Ajay Khanna, director of DLF group, have interpreted Chidambaran’s silence in the negative way — the Centre has not taken a decision to extend the benefit.

“I am told that as the minister has not said anything of extending 80-IB of the IT Act, it means the benefit continues till notified otherwise. The speech mentions continuing IT benefit to the infrastructure sector in section 80-IA. Since Housing/Real Estate is also construed as infrastructure and so, a few tax consultants believe the same benefit is applicable. There is no clarity on the issue,” said Jain.

“Though there were only a few developers constructing small-sized flats, the move to take away the incentive will rather discourage them to continue building them. This will affect the supply of such flats. It will affect property prices which will increase sooner or later,” said Niranjan Hiranandani of Hiranandani Developers. He added that the government was sending a wrong signal by giving I-T benefit to the hospitality sector than the housing sector.

Introduced in the 1998 Budget, the tax bonanza for builders was aimed at promoting mass housing. While that (mass housing) has not happened, a developer further does not pass the benefit to the prospective buyer. Hiranandani, however, refuted this and said that he passes on the benefit by selling smaller flats at 5-10 per cent less than bigger area flats at his complex at Thane.

Disappointed, president of Maharashtra Chamber of Housing Industry M Munot said, “If the developers do not benefit, how can we pass it on to the consumer. There is already a shortage of 18-20 million units. If developers are more taxed in addition to shelling out high-land costs, not only we will ultimately have to pass it on to the end users but who will have to bear the high cost.”

Saying the Act should have been granted extension despite its unsuccessful tenure, Ambar Maheshwari, head (Investment Advisory) with global real estate advisors DTZ said, “There is not much housing stock available, which in fact is the need of the hour. All this while, developers were not constructing flats of 1,000 sqft as compared to large luxury apartments since such projects were not lucrative.