Budget 2018: Realty players expects low GST rates, industry status and much more for the sector

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The year 2017 for the real estate sector proved to be very turbulent with the implementation of policies like Demonetization, RERA and GST. In order to bring the sector back on the tracks, the realty players have suggested certain measures to be taken by Finance Minister Aun Jaitley in the upcoming Union Budget which will be presented on 1st February, 2018. Realty Plus quotes the suggestions and expectations of the prominent real estate developers and industry experts. Mr. Surendra Hiranandani, CMD, House of Hiranandani said, “Presently the GST rate applicable to Real Estate Industry (i.e on sale of Flats) is 12% of the sales consideration. During the Pre GST era the applicable rate of Service Tax was around 4.5% and Value Added Tax of 1% was also levied, resulting in total tax outgo of 5.5% of the sales consideration. In the GST regime the Input Tax credit is available on taxes paid on materials bought for construction which can be the adjusted against the GST liability, the effective tax rate post adjustment is quite high as compared to the old rate of 5.5%. Further, stamp duty continues to remain in force even after implementation of GST and the rates vary from state to state which increases the costs for the consumer. We hope that state governments abolish the same or merge with the existing GST rates. Owing to aforesaid factors we feel the present GST rate must be revisited and stamp duty should be abolished.” Mr. Shailesh Puranik, MD, Puranik Builders Pvt. Ltd said, “The industry has going through a transition and challenging times due to many pivotal policy changes like RERA, REIT, GST, and Demonetization that occurred last year. 2018 also looks like to ride along the lines of 2017. However, we expect the government to take some corrective measures in the Union Budget 2018 that would provide relief to the real estate sector. To begin with there should be no constraints and allowance must be given on the entire interest of housing loan as a deduction for taxation purpose which will again fuel demand for housing. We also expect that the Housing loss set-off limit should be increased from Rs.2 lakhs. The Budget 2018 should provide more incentives for the first time home buyers and developers who have been reeling the burden of RERA and general slowdown last year. It would be helpful if additional limit is set for the principal amount of the home loan, as usually this limit of INR 1.50 lakhs under 80C which gets exhausted under regular investments like PPF, FDs, EPF, insurance premium and much more. Considering the slowdown witnessed in the real estate market the above recommendation can help the sector to gain some momentum and will reap higher growth prospects for builders as well as better returns for the end consumers. National Real Estate Development Council (NAREDCO), an apex body of real estate sector, requested Government to incentivise developers and home buyers, through upcoming budget 2018-19, to increase supply and purchasing power of home buyers with a view to achieve the Government dream of Housing for All by 2022. In this regard, NAREDCO has already submitted its pre-budget memorandum, outlining various recommendations and suggestions and requested for due consideration by the Government. NAREDCO and its office bearers feel that budget is an important opportunity to further the interests of the home buyers of the country and request Government to consider our demands sympathetically. NAREDCO Chairman Mr. Rajeev Talwar said “Industry status is something which is long overdue to the sector. Government should help developers in getting better access to funds and also incentivize homebuyers to create demand for the sector, which is facing a lot of challenges.” NAREDCO’s most important demand is to bring housing under construction in 12% GST rate from 18% now with 50% abatement for land from prevailing 33%. This will bring tax rate at the level of around 6% of the property cost. NAREDCO has suggested that the entire housing from 30 to 150 sq.mtr. Carpet area, under PMAY, should be brought under the purview of section 80 IBA of IT Act 2016, which is at the moment 60 sq.mtr. carpet area, to incentivize private developers to take up affordable housing construction at large scale to meet the supply requirement of 20 million houses by 2022. Section 80IBA provides for deduction of 100% of profit derived from such business. To incentivise home buyers, NAREDCO has suggested an increase in cap of interest paid on home loan, by home buyers, from Rs. 2 lakhs to Rs. 3 lakhs. To augment housing stock, NAREDCO has suggested that Capital Gain Tax if invested in building houses (one or more) should be exempted from Capital Gain Tax. To incentivise rental housing construction in the country, which is at dismal low, in comparison to other developing and developed counties, NAREDCO has suggested a flat tax rate of 10% or increasing deduction limit from 30% to 50%. Further, NAREDCO has also suggested doing away with notional income from property held as stock in trade, by the developers. For ease of doing business and attract investment, NAREDCO has suggested an online, streamlined and centralized project approval procedure. NAREDCO has also suggested doing away with notional income based on circle rate for computing tax on profit or gain u/s 43CA of IT Act 1961. NAREDCO hopes that the major concerns of the sector will be taken care of while finalizing the budget proposals and the industry will continue to get the support it has been getting from the Government. Mr. R. K Arora, Chairman Supertech Ltd. says, “The real estate sector has been impacted by policy reforms such as RERA, GST and Demonetisation. The upcoming Union Budget 2018-19 is an ideal time to push policies. We urge Finance Minister, to grant the infrastructure status to the entire real estate sector making funds available at much lower interest rates for developers’ community. Also, we need an abolition of stamp duty, which unfortunately continues to remain in force even after GST is implemented, leading home buyers to pay much higher than ever before. Lastly, we wish to reduce long-term capital gains holding period from three to one year in Real Estate Investment Trusts (REITs) to make it more attractive for investors”. Mr Mayur Shah, President, CREDAI-MCHI highlights three key points for the Budget. They are - Ease of Doing Business for real-estate in all areas of approval/ NOCs, Single Window clearances and higher concessions in Income Tax for homebuyers. For homebuyers, Mayur Shah expects that deduction under section 80C should be allowed to individuals in respect of the cost of their first self-occupied house property up to INR 5,000,000. The said deduction could be spread over a period of 5 years. Deduction under section 80C for principal repayment of housing loan should be increased from existing limit of INR 150,000. Alternatively, the deduction for principal repayment of housing loan can be considered for a separate or standalone exemption. Under Section 24 (b) for deduction of housing loan interest, the interest in respect of first self-occupied property should be allowed without any limit. Alternatively, the limit for deduction of interest should be increased to INR 10,00,000 in respect of the self-occupied property. Under Section 54F, the exemption for the investment of sale proceeds in one additional residential property (other than the existing limit of one property) should be provided and the necessary amendment should be made in the Act. Deemed taxation based on stamp-duty valuation for home assets should not be taxed as Capital Gains as in section 43CA and 50 C as property prices are determined by various factors including distress sale by common home owner. For Industry players, Shah expects that in order to give a further boost to affordable housing, projects should be exempted from MAT to make affordable housing projects through SPV route, as it would become more attractive thus fetching higher investments. Joint Development Agreement (JDA) has evolved as effective model for the real estate sector, however there exists uncertainty with respect to point of accrual of capital gains. It has been laid down by Tribunal / Courts that Capital Gain accrues at the time of entering into JDA, issuing the General Power of Attorney to the developer and giving the possession. Provisions of Section 45(5A) of the Act should be made applicable to all the assessees owning land and should not be restricted to only individuals and HUFs. The amended provisions should be applied irrespective of whether the land owner owns the land as capital asset or business asset and the amended provisions should be applicable to all types of JDA arrangement including areas share or revenue share. It will contribute in achieving the Government’s vision of ‘Housing for All by 2022’. The exemption for investment of sale proceeds in one additional residential property (other than the existing limit of one property) should be provided and necessary amendment should be made in the Act under section 54 F. The amendment will encourage the home-buyers to invest in and would lead to improved affordability on account of both rental housing and improved supplies of housing stock. Rationalization of Mergers and Acquisition provisions to rescue stalled projects requested by way of allowing tax neutral consolidation of businesses by way of merger/amalgamations subject to fulfillment of other specific conditions of the Act. It is suggested to extend the provisions of section 72A to cases of amalgamations across businesses, and do away with the conditions of section 72A (2); so as to have it in line with the corresponding provisions of demerger. Besides, CREDAI – MCHI, the apex developers’ body expects concessions in income tax of at least Rs. 5 Lakhs per annum for home buyers and reforms in land acquisition for industry. Indeed, this budget needs to offer some major sops to industry for empowering it to provide home to every Indian. According to Mr. Parveen Jain, CMD, Tulip Infratech Pvt. Ltd., “There are two main pre-budget expectations or recommendations. The first one is that presently the Affordable Housing category is limited upto 60 sqm area only, this area limit should be increased so that the MIG category housing can also come under the Affordable Housing category. Talking about the most recent policy reform which is in the reckoning is that under the PMAY (Prime Minister Awas Yojna), the earlier MIG-1 carpet area of 90 sqm has been increased to 120 sqm and the earlier MIG-2 carpet area of 110 sqm has been increased to 150 sqm. If the housing under the above categories is brought under the Affordable Housing, then they shall avail the benefits and subsidies of the Affordable housing category which is expected to give a big boost for the real estate market in the coming years. This will pave the way for availing the loans for the same easily and also to enjoy the associated advantages of the Affordable Housing category as Affordable Housing has been allocated the ‘Infrastructure status’. The second main pre-budget expectation is that the current GST of 12% should be lowered to atleast 6 to 8%. Both these above measures if taken judiciously shall give a tremendous boost to the Real estate market. These steps will also serve the cause of realizing the government’s mission of ‘Housing for All by 2022’ to a great extent because if these steps are implemented, then the masses shall be in a much better affording position for buying and investing in Housing." Mr. Amit Ruparel, Managing Director, Ruparel Realty said, "Housing for all has been at the top of the agenda of the government in 2017 and will continue to be the key highlight in 2018. Affordable housing witnessed an increase of 20% in new launches in 2017 as compared to 2016 and this trend will continue. This year the government should focus on providing industry status for the real estate sector as a whole which will ensure easier access to institutional credit and help in reducing developers’ cost of borrowing for projects. Reducing the current GST rate will help buyers & boost the sentiment of the industry. Additionally, stamp duty and registration charges which are outside the ambit of GST, hope this budget government subsume these levies into GST” Shashi Prabhu & Associates (SPA) is a major Architecture, Engineering and Project Management company. Amol Prabhu, Partner, Shashi Prabhu & Associates said, “The year 2017 has brought about a striking change within the real estate sector with policy implementations like the RERA, REITs, GST, and not to forget the Demonetisation. With the Union Budget 2018-19 coming up, most of the players within the sector are hoping for tax revisions and infrastructure incentives for the sector. Additionally the industry players are also expecting the government will reduce the GST rates from current rate to a more standardized and affordable rates including the input tax credits. Government should look at providing higher subsidies on sustainable technologies like Electric Vehicles, Solar Energy and other for ‘Green Technologies’ for highest environmental benefit which is the integral part of government’s agenda. Also, government should accelerate infrastructure development like highways, water supply and small airports for development of interior in tier II & III cities. Seeing the current situation of the market the above recommendation can help bring life back into the sector.”