To achieve the goal by 2022, the govt may cut GST rate, raise income tax rebate limits, give industry status to real estate
Residential real estate may get further boost in the upcoming Union Budget to give impetus to government's 'Housing for All by 2022' goal.
To achieve that, the Centre may look at various options such as reducing goods and services tax (GST) rate, increasing income tax rebate limits, giving industry status to the real estate sector.
"There is a possibility of government coming up with some announcement to rationalise taxation on the sale of homes. If GST and stamp duty registration are combined, the total outgo is quite high as compared to pre-GST days. Either stamp duty should be merged within GST tax rate or GST rate has to come down," said an industry player.
The overall taxes for home buyers, inclusive of stamp duty and registration charges, are between 16.5 and 21% as compared to a maximum of 18.5% before the new indirect tax was rolled out on July 1 last year.
Apart from GST, home buyers continue to pay stamp duty and registration amount. Stamp duty rate varies from state to state. If the GST and state taxes are included, the outgo works out to be as high as 20% for some states to purchase a property.
Though the issue of reducing GST did appear in the last two GST Council meetings, no decision was taken; therefore, industry players are now looking forward to a favourable announcement on the tax front in the upcoming Budget.
However, GST Council in its Thursday meeting decided to extend the concessional rate of GST to houses constructed or acquired under the credit-linked subsidy scheme for economically weaker sections, lower income group, middle-income groups under the Housing for All Mission and to low-cost houses up to a carpet area of 60 square metre per house in a housing project which has been given infrastructure status.
According to National Real Estate Development Council (Naredco) president Niranjan Hiranandani, "If GST rate is brought down to 6%, there is potential of housing sales increasing tenfold."
The existing levy of 12% GST is certainly not a catalyst to achieve the Housing for All target.
Another area where sops for housing sector could be announced is the tax exemption limit. The industry has sought interest deduction limit to be increased from Rs 150,000 to Rs 500,000, but such a high amount is unlikely to be conceded by the finance ministry; however, the possibility of some increase in the limit cannot be ruled out.
There may also be some incentives in store for the first time homebuyers, who may also end up getting benefits in the income tax payment if their housing project is under construction.
Rajeev Talwar, chief executive officer, DLF, as part of the industry delegation, has demanded industry status for the real estate sector, which he claims is long overdue. "Government should help developers in getting better access to funds and also incentivise homebuyers to create demand for the sector, which is facing a lot of challenges," said Talwar.
In the last Budget, the government had accorded industry state to the affordable housing segment.
If the real estate sector is given infrastructure status, it may open up possibilities of faster development and greater private participation on the back of financial options, tax exemptions on revenues and profits as well as access to preferential lending for key sector developments.
One of Naredco's demands is to bring housing under construction in 12% GST rate from the present 18% along with 50% abatement for land from prevailing 33%. "This will bring tax rate at the level of around 6% of the property cost," read their statement.
JLL India CEO and country head Ramesh Nair said the government should also turn the focus on rental housing schemes as it is also an important factor for social welfare. "The affordable housing includes rental projects held institutionally for formats such as student housing, senior living and executive rental housing in growth centres."
After the implementation of Real Estate (Regulation and Development) Act, 2016, consolidation has begun in the sector. In order to protect the interests of smaller private developers in the market, giving them 'small and medium enterprises' status would be beneficial as it would help them in accessing borrowings from the banks.