Real estate sector cheer over Section 54

There is finally a ray of hope for the real estate industry that has long been facing a slow down. While the low rate GST proposal was not accepted, it has been assured that the committee will review GST that a home buyer pays. This has raised the hopes of developers.

In the budget apart from GST there were three other important aspects concerning the real estate market. The proposal of extending the period of exemption from levy of tax on notional rent on unsold inventories, from one year has been extended to two years. Dr Niranjan Hiranandani, president, NAREDCO said, "This will be applicable from the end of the year in which the project is completed, and will ensure that the slow-down in creation of fresh stock as a result of the previous situation, wherein the exemption was only for one year, will be positively impacted."

Nishant Shah, tax partner, Economic Laws Practice, said, "Under the Income Tax act any inventory lying unsold beyond a year attracts notional rent on which income tax is payable by the developer. The proposed amendment seeks to extend this period beyond which income tax on notional rent will be payable from one year to two years. This is surely a welcome move for the real estate sector."

The other important aspect in the budget was, for families that own more than one house currently, income tax on notional rent is payable in such cases. The budget has a proposal of exemption of levy of income tax on notional rent on a second self-occupied house.

Another important proposal in the budget is the benefit of rollover of capital gains under Section 54 of the Income Tax Act. It has been proposed to be increased from investment in one residential house to two residential house for a tax payer having capital gains up to Rs 2 crore. "The benefit of rollover of capital gains is a tremendous step by the government that will boost sales in both primary and secondary markets," said Shishir Baijal, chairman and managing director, Knight Frank.

Terming the budget historic, Nayan Shah, president, CREDAI-MCHI said, "The Budget has also been historic from a real estate perspective. Many provisions have been announced with the assurance of the Finance Minister that the GoM set up to review the impact of the GST on the home buyer has been given the mandate of reducing the tax burden. Overall, the Budget has been path breaking and will bring a lot of relief for the mid income tax payer and some long awaited cheer to the real estate industry." Though some developers expecting an announcement on the GST reduction were disappointed.