Budget aims to stimulate growth through realty & infra play

In the months since interim Budget, India's economy has taken a turn for the worse with growth rate being lower than expected. Given the state of the Indian economy, corporate India had pinned hopes from the first budget in Modi government's second term.

Real estate and infrastructure sector are core sectors in a developing economy like India. Despite their significant influence on the GDP of the country and contribution to job creation, the sectors have been suffering from multiple challenges such as liquidity crunch, unsold inventory, non-availability of equity, asset-liability mis-match etc.

The finance minister in her maiden Budget speech mentioned building physical and social infrastructure as being one of the visions of the Budget.

A number of policy measures have been introduced to give thrust to infrastructure sector which would also help the government achieve higher growth rate and the vision of India becoming a $5 trillion economy. The government plans to give a massive push to all forms of infrastructure i.e. roads, rivers, railways, aviation and power. They key proposals include (i) a comprehensive restructuring of National Highways programme (ii) using rivers for cargo transportation (iii) PPP in the railways sector and station modernisation (iv) FDI liberalisation in aviation sector (v) focus on 'one nation, one grid' for the power sector (vi) providing a blueprint for developing gas grids, water grids, i-ways and regional airports. Further, the government has unveiled its plan to invest Rs 100 lakh crore over the next five years in infrastructure sector.

To encourage financing options in the infrastructure sector, liberalisation measures have been proposed in the corporate debt market and foreign portfolio investors have been permitted to subscribe to listed debt securities issued by REITs and InvITs.

In the real estate sector, the FM announced the plan to bring in reforms to promote rental housing and a model tenancy law which will be developed by the Centre and shared with states. Significant land parcels, which are currently not utilised to their full potential, are in the ownership of the government either directly or through PSUs. The government plans to bring in a mechanism through joint development and concession model to monetise such land parcels for affordable housing. This will help the government in raising funds and at the same time increase the activity levels in the real estate sector.

On the tax front, additional interest deduction of Rs 1.5 lakh to individuals has been introduced (over and above existing deduction of Rs 2 lakh) on loans taken to acquire an affordable house subject to fulfilment of certain conditions. It is also proposed to align definition of 'Affordable Housing' as provided under section 80-IBA of India tax laws with that in the GST Act to avoid any ambiguities.

In order to address genuine hardships faced by certain class of tax payers on account of deemed income provisions (section 50CA and section 56), the finance minister has introduced an enabling provision in the relevant sections which allows the CBTD to prescribe class of tax payers which will be exempt from deemed income provisions.

While there have been significant policy measures announced, on the tax front, the asks of the real estate and infrastructure sector such as rationalisation of taxation of REITs & InvITs, tax consolidation in infrastructure sector, rationalisation of section 14A, have been largely ignored. The Budget's focus on comprehensive plans and involving private sector in infrastructure sub-sectors is welcomed as the same would aid in development of infrastructure at quick pace. The Budget is aimed at stimulating growth which is much needed and the FM has assured that government recognises the significance of infrastructure sector's contribution to the economy.

Maadhav Poddar, tax partner, EY

(Views expressed are personal)