How Union Budget 2017 – 2018 Makes Real Estate More Affordable – Yigal Gabriel, Associate Partner – Khaitan & Co.

New Delhi, April 10, 2017: The real estate sector for the last few years has been witnessing one of the biggest slowdowns. To enhance consumer and investor confidence, transparency, governance and accountability, the Government has introduced a number of reforms like RERA, Benami Transaction Act, relaxation of FDI norms, launch of Smart Cities initiative and housing for all programme, to name some of them.

The Central Government had in the year 2015 had announced Housing for all by 2022. With a view to achieve this objective theGovernment proposes to complete 1 crore houses by 2019 for people who are homeless or living in kutcha houses. The Government has also increased the allocation for the Pradhan MantriAwaasYojana – Gramin from INR 15,000 crores in 2016-17 to INR 23,000 crores in 2017-18.

The Union Budget 2017 has proposed several positive measures to strengthen and boost the real estate sector.

Affordable Housing

The Government has granted infrastructure status to affordable housing. This will enable developers to obtain long term construction finance at competitive rates thus reducing the overall cost of the project. The boost to Affordable Housing would lead to development of the distant suburbs and would intron ease the pressure in the metros.

Some of the incentives for affordable housing under the Budget are:

· The area of a residential unit will be carpet area as against the earlier reference of built up area;

· The condition that the size of the residential units should not exceed 30 sq. meter will apply only in case of municipal limits of 4 metropolitan cities while for the rest of the country including in the peripheral areas of metros, limit of 60 sq. meters will apply; and

· The time period of completion has been extended from 3 years to 5 years from the date of its approval.

Relief for Real Estate Developers holding House Property as Stock in Trade

Developers were subject to tax on notional rental income on unsold inventory however the Budget grants relief to developers from the charge of notional rent for a period of 1 year from the end of the year in which completion certified is received for liquidating their inventory.

Reduction of Holding Period for Long Term Capital Gains

The Budget reduces the holding period from the existing 36 months to 24 months for computation of long term capital gains for an immoveable property which shall be an impetus to the real estate sector.

Further the shift in the base year from 1981 to 2001 for computation of capital gains, the fair market value as on 1 April 2001 could be considered as cost of acquisition of assets acquired before 2001. Higher cost (as compared to FMV as on 1981) will be available to the seller and consequently lower his tax burden.

Taxation on Owners under Joint Development Agreements (JDA)

Under a JDA, the liability of an owner arose in the year in which possession of the immoveable property was handed over to the developer. Thus the owner upfront came under a huge tax burden upfront inspite of the fact that he would receive the consideration cash and/or in the form of constructed area over a period until completion of the project.

As per the Budget:

· The liability to pay capital gains tax will arise in the year in which the completion certificate has been issued, provided that the owner has not transferred his share or portion thereof prior to the date of the completion certificate.

· The stamp duty value on the date of the completion certificate and any consideration received in cash will be collectively be considered as consideration arising out of transfer of property.

It should however be noted that the above relief is granted to owners who are individuals and HUFs and not to firms or companies.

Conclusion

The budget seeks to give the real estate sector the necessary boast however the middle class of the society were hopeful that in this Budget the limits for claiming deductions relating to housing loans would increase but have been left disappointed. The objective of the government is to alleviate the poor and to bring about a social change.

Corporate Comm India(CCI Newswire)