By Alok Agrawal
The NDA government had taken several policy initiatives to give a boost to the ailing real estate sector leading to some signs of revival.
Home buying is considered a pivotal change in life. Given that homebuyers may be placed at various stages of the real estate cycle, let us take a look at homebuyers’ expectations from Budget 2018:
A. Booking stage:
- Anti-profiteering provisions to be more specific:
Under the erstwhile indirect tax regime, apart from Central Excise duty, VAT and entry tax was payable on construction material in most states. All of these taxes were not creditable for payment of Service Tax or VAT on construction of flats, etc. under the composition scheme. As a result, incidence of all these taxes initially paid by the builders were passed on to customers as part of the cost of the flat.
With the real estate being partially brought under the GST regime, credit of taxes paid on purchase of materials and transportation costs is now available to builders and it is therefore expected that the incidence of tax cost on the overall price of flats should reduce. By introducing the anti-profiteering measure under GST regime, it is intended that builders should revisit their cost sheets, as they are statutorily obliged to pass on the benefit of reduced tax cost to flat buyers by way of reduced prices/ instalments. However, it is expected that Budget 2018 should bring more clarity on computation aspects of such anti-profiteering measures to give comfort to house buyers.
If this is done, it would support the government’s mission of ‘Housing for All by 2022’ in a big way by making housing more affordable.
- Stamp duty and GST
Media reports suggest that discussion of real estate inclusion in GST is one of the key agenda items for the GST Council, scheduled to meet on January 18th. One point being discussed is that stamp duty on property before registration may itself be subject to GST. If this becomes true, it could further inflate property prices and have adverse impact on demand from homebuyers.
- Reinstatement of additional deduction of INR 50,000:
An additional deduction of INR 50,000 from taxable income was available for first time homebuyers where value of the property was limited to INR 50 lacs, loan taken was limited to INR 35 lacs and whose housing loans were sanctioned during the period 1 April 2016 to 31 March 2017. It would be beneficial if this deduction is reinstated for first time home buyers with loans sanctioned after 31 March 2017 also.
Further, homebuyers residing in metro cities would hope for a higher value cap (similar to certain other tax exemptions such as HRA exemption).
- Pre-construction interest deduction to be allowed separately in the respective year:
Currently, pre-construction period interest is allowed as a deduction in 5 equal annual instalments starting from the year in which the construction of house property is completed. Since there is no separate limit to allow this pre-construction period interest (i.e. this is covered within the overall limits for interest on self-occupied and rented properties), homebuyers typically are unable to take any tax benefit for such interest cost. Therefore, it would help many homebuyers if such interest is allowed as deduction in the year of payment of interest, even if such deduction is subject to conditions on time limits for construction completion and continued ownership of the property.
- Interest deduction limit for self-occupied property to be increased to at least INR 3 lakh
Presently, the maximum cap on claiming interest deduction for a self-occupied property is INR 2 lacs (subject to certain conditions). Even for INR 35 lacs loan of 25 years @ 8.5% p.a., the annual interest payable by the assessee would be well over INR 2 lacs for initial years and would reduce below INR 2 lacs only after several years. As such, homebuyers (especially those in big cities) expect the upcoming Budget to increase this limit by at least 50%, to a minimum of INR 3 lacs.
- Set off limit for house property loss to be increased to at least INR 3 lakh
In the last Budget, set-off of house property loss against other taxable income was restricted to INR 2 lacs. Any excess loss is to be carried forward and adjusted against only house property income of future for 8 years. Continuing with the same intent of bringing parity of taxation with self-occupied house property owners, this limit of allowing loss to be off-set against any taxable income of that year should be increased to at least INR 3 lacs.
C. Stage of sale: Lock-in period for capital gains exemption should be reduced from 3 to 2 years
The last Budget reduced minimum holding period for immovable properties for beneficial tax treatment from 36 months to 24 months. No tax is imposed on long term capital gains in some situations (subject to conditions), where the taxpayer buys a new property and holds it for 36 months. It is expected that this minimum period of holding for such new property is also reduced from 36 months to 24 months.
Such amendments will not only bring a cheer amongst existing homeowners, but would provide positive stimulus to the demand from millions of Indians who are keen to climb up the property ladder.
(With inputs from Manish Shah, Bhavik Shah, and Vikas Birla)
The author is Senior Director, Manish Shah is Director, Bhavik Shah is Senior Manager and Vikas Birla is Manager with Deloitte Haskins and Sells LLP.