Govt. urged to rationalise taxes to boost housing

The real estate sector is witnessing signs of a revival despite the disruptions of the ongoing Pandemic. In the year, the demand was aided by historic low-interest housing rates and support from various state governments on cuts in stamp duty rates.

The industry wants the government to help the sector further. It is the second-largest sector in employment generation after agriculture and the third-largest contributor to GDP. The sector is able to address unemployment issues and catalyse consumption in the economy right from grassroots levels.

If the sector can sustain the existing demand, the government needs to rationalise taxes and tweak specific provisions.

Affordable housing is defined as a residential unit of 60 sq. In Metro cities, a residential unit of 90 sq meters of carpet area in non-metro cities and the stamp duty value of these residential units in the project should not exceed 45 lakh.

The price for carpet areas in 80% of the non-metro cities is less than Rs 5,000 per square foot. If we consider a price of Rs 5,000 per sq ft. for a 90 sq meter carpet area, the selling price will be Rs 48.43 lakh, and this will be ineligible.

In metros in peripheral areas, the carpet area's price is less than 7,500 per sq ft. The price goes up to Rs 48.43, which is less than the threshold of 45 lakh if we consider a price of 7,500 per sq ft. for 60 sq meter of carpet area.

In view of this, it is proposed that the area should be increased from 90 sq meters to 120 sq meters in non-metro cities and 60 sq meters to 90 sq meters in metro cities and the stamp duty value of such units should be raised to 75 lakh. Both buyers and developers are benefitted by increasing the area and value.

The interest deduction should be increased as the actual payment of interest is much higher, as homebuyers lose the benefit of interest claim, which exceeds the limit of Rs 200,000. Increase this to around 500,000 will encourage home buyers to invest in real estate and spur demand for housing.

Income tax is levied on individuals and institutions that purchase residential units and give them rent. The rental income earned by both of them is taxable. The government should consider exempting 100% of the rental income up to 20 lakh per annum from the payment of income tax under normal and special provisions MAT as applicable. This will promote rental housing in the country.

The holding period for holding capital gains is more than 24 months, and the tax rate should be reduced to 10% and the holding period is reduced to 12 months, this will encourage investments, and the arbitrage between financial assets and real assets will be reduced.

Provisions under Section 23 5 to charge tax on notional rent on a property should be removed as this is causing double taxation. The inventory held by the developer that is not actually let is taxed on a notional basis under the head income from house property, and then upon sale of such units the gains are taxed under the head profit from business. This additional tax is a burden for the business because of the fact that no other industry is not able to tax inventory on a notional basis.

The idea of REIT InvIT is to create liquidity and encourage small savings into real estate and infrastructure. The REIT units need to be held for 36 months to be eligible for long-term capital and lower interest rates. The holding period can be reduced to 12 months in the case of listed shares to qualify for long term capital assets.

This can set the momentum for India to become a 5 trillion economy.