Every year, the Union Budget presents the Government with an opportunity to tweak the direction that the Indian economy is taking. Sometimes, hard decisions are taken which, while necessary, do not necessarily go down well with Mr. Everyman. At other times, the Union Budget is clearly meant to be a crowd-pleaser. This invariably happens when an incumbent Government is finishing its term and general elections loom, for obvious reasons.
The current Government has done a lot for the Indian real estate industry, even when it was in the form of hard decisions like demonetization and the disruptive but very necessary RERA. With the hard decisions now taken, the Indian real estate sector fervently hopes that it is at the receiving end of the benevolence implied in a populist budget. This benevolence needs to go beyond improving personal finances and the implied boost to real estate investment appetite.
Despite the Government’s very proactive stance towards cleaning up and regulating the sector, there are still several policy-related pain points where the coming Union Budget can make a decisive difference:
Why this has not happened despite it being a very clear and dire need – even more so given the Government’s dream of Housing for All by 2022 – is a bit of a mystery. The clearance and approval process for residential real estate projects has been an impediment for a long time. Although many initiatives have been taken to create a conducive business environment in the sector, the demand for single window clearance mechanism in totality is yet to be fulfilled.
If implemented, single-window clearance can significantly reduce the overall projects cycle time and developers will be able to focus on their core business of project execution. Post-RERA, it has become all the more important to facilitate smooth clearances and approvals so that there are no execution delays due to procedural hindrances.
Industry status to real estate sector
Again, a long-standing demand which has so far gone unmet. Real estate is one of the key GDP contributors and the fourth-largest employment generator in India. Extending industry status to the entire real estate sector will help developers to raise funds at lower rates and, in turn, reduce their project costs – which will help in pushing demand. Additionally, the inclusive growth of the real estate sector will help in generating employment across various sectors which are directly or indirectly related to it.
Tax rationalization on REITs
As of today, the first REIT is yet to be listed in India. Simplifying the taxation norms for REITs is a critical requirement for listings to start flowing in, which will benefit the entire real estate sector by the enhanced participation of a much broader bandwidth of investors.
Higher income tax benefits for the first time home buyers
Yes, this always matters for the residential real estate sector. Currently, a first-time homebuyer can claim an additional tax deduction of up to INR 50,000 per financial year under section 80EE of the Income Tax Act, provided certain conditions are fulfilled. Tax exemption should be increased so as to incentivize first-time home buyers.
Reduction in GST rates
As of now, under-construction properties are levied a GST of 12%, which is significantly higher than the previous taxes. The Government should strive to make GST a tax-neutral proposition so as to help in reviving demand in the real estate sector. Clarity and transparency on input tax credit will also help in rationalizing the taxes.
Higher incentives for green buildings
They are the indisputable need of the hour in India’s deteriorating urban environment, but the marginally higher cost of construction of green buildings has kept a majority of developers away from such projects. Keeping the current and certain future challenges to the environment, the Government should encourage developers with higher incentives in terms of FSI and/or some degree of tax exemption to encourage them to adopt green building technologies.