The interim budget focused on the residential segment of the real estate market ahead of the general elections due by May, waiving tax on notional rent, extending tax benefit period for affordable housing and increasing the threshold limit for tax deducted at source (TDS) on rental income.
In another move that will likely hot up the affordable home market, acting finance minister Piyush Goyal gave more disposable income to the middle class, raising the tax rebate limit to Rs 5 lakh from Rs 2.5 lakh annual income. In other words, anyone with net taxable income up to Rs 5 lakh will not pay any taxes.
With the intention to ease stress among developers, the interim budget for 2019-20 extended the tax benefit period for players developing affordable housing projects for one more year till March 2020. Also, the budget proposed to extend the period of exemption from notional rent tax on unsold inventories, from one to two years, from the end of the year in which the project is completed.
Experts say exemption from income tax on notional rent on a second self-occupied home will also go a long way in bringing new consumers in the market. It will encourage investors looking to have a second property. This, coupled with the tax exemption on rent up to Rs 2.4 lakh, is a good step to boost the residential market, say experts. Moreover, the budget also increased rollover of capital gains from investment in one residential house to two residential houses for a tax payer having capital gains up to Rs 2 crore. This benefit can be availed once in a lifetime.
In addition, the TDS threshold for deduction of tax on rent has been increased from Rs 1.80 lakh to Rs 2.40 lakh.
Calling it a balanced budget, Ramesh Nair, India head of real estate services company JLL, said that the initiatives announced can usher the country into a new phase of development and growth. "The announcements are expected to boost the real estate sector and keep up the pace of development achieved in 2018. This budget is clearly focused on both home buyers and developers with unsold inventory, and addresses some of the key pain points of the sector,” he said.
Pankaj Kapoor, managing director of realty consultancy Liases Foras, said, “The pain in the real estate market has been acknowledged by the government and, therefore, we see steps like tax exemption on inventories being extended from one year to two years.”
Anuj Puri, chairman, ANAROCK Property Consultants, said it was a balanced budget for real estate, even though it was clearly a crowd-pleasing electoral pitch with a cursory nod towards the ongoing challenges in the economy. “For the housing sector to regain significant momentum, the real need is to woo back the long-term investors who exited the residential market. One possible way was to re-introduce the home loan benefit on second homes,” he said.
Developers in India have been facing sluggish sales for many years, customer trust deficit, and now a worsening credit crisis thanks to the mayhem in the NBFC space. NBFC is non-banking financial company.
Market analysts are also slightly disappointed with the fact that the government did not address the NBFC crisis that has unfolded in the market over the last few quarters. NBFCs have a large exposure to the housing market, a segment that’s going through tough times and exerting a negative pressure on its creditors.
The market expectation of reduction in GST for home buyers also went unmet.