The real estate sector as well as home buyers have high expectations from this year’s Budget. It is expected that the Budget will fix many long-standing tax related issues.
Deduction of home loan interest
Section 80EE of the Income Tax Act which provides additional deduction on interest payment up to Rs 50,000 to first-home buyers contains certain conditions with respect to the maximum amount of loan, value of the property, period of sanction, etc. It is expected that these conditions shall be relaxed and the amount of loan sanctioned (i.e., up to Rs 35 lakh) will be removed. Also, period of deduction of sanction of loan (currently till March 31, 2017) may be extended up to March 31, 2019.
Taxation of notional rent
A person with more than one house property has to pay tax on notional rental income from property other than the self-occupied one if the same has not been let out. It is expected that in line with the recommendation made by Justice Easwar led Income Tax Simplification Committee, the concept of tax on notional rental income will be abolished.
Service tax on projects under construction
In case of projects under construction, service tax is charged on 30% of the consideration (including land and construction cost) resulting in a levy of 4.5% of the total consideration. Further, VAT is charged by the state governments. It may be pointed out that transactions in immovable property are subject to stamp duty (5-10% across states ) which results in very steep taxation. The service tax is not applicable to completed projects resulting in differential between under construction projects and completed projects. It should be moderate to 3% or alternatively, the land value should be reduced from the consideration.
Clarity on redevelopment of properties
Matters relating to taxation of capital gain in case of redevelopment of property is fraught with litigation and uncertainty. Most often, controversy is around these issues — self-development by housing societies or development agreement with the developers, taxability of area allotted or earmarked on reconstruction in lieu of the earlier area, compensation for alternative accommodation by developer and so on. Further, in case of taxability, there is lack of clarity regarding the year of transfer, cost of acquisition, sale consideration, eligibility for exemption under Section 54 due to deemed re-investment and implications in case of delay in completion of construction beyond three years, benefit of indexation which can be availed, etc.
Given the vast re-development necessary for modernisation of cities, self-redevelopment by housing societies should be exempt and in case of redevelopment by developers, the exemption should be granted under Section 54 irrespective of the date of completion of redevelopment. The compensation for alternative accommodation should be exempt to the extent actually incurred.
The writer is founder, RSM Astute Consulting Group