Budget 2018: On February 1, date of budget 2018, Modi government will announce the much-anticipated union budget. This will be the fifth common man’s budget under its tenure and will be presented by the finance minister Arun Jaitley. While many industries have already given Modi government for their budget recommendations, real estate tycoon and NAREDCO chief Niranjan Hiranandani also came forward to present his budget recommendations for the common man budget 2018 to the Narendra Modi government. Hiranandani talks about factors that can ensure that India’s home seeker get their ‘dream home’. Hiranandani talks about the size of real estate sector and its contribution to the economy. He said that even after being the second largest contributor to the Indian economy (as per the report released by India Brand Equity Foundation), real estate sector has not yet received the industry status. Hiranandani said that the real estate sector contributes to over 15 per cent of India’s GDP directly or indirectly. Here’s what NAREDCO president Niranjan Hiranandani has to recommend about the budget 2018.
Budget recommendation 2018 to Rekindle Indian Real Estate:
The real estate sector has been at the forefront of the Indian Governments agenda given its potential to propel economic growth significantly. It is imperative that this sector gets due weight in the upcoming union budget 2018 for policies and incentives that enhance the development of the sector. I would look upon the forthcoming budget to take things to the next level – so that several initiatives which have become ”Walk the Talk”, get expedited and become a reality faster – and ensure that India’s home seeker get their ‘ dream home’
Being the second largest contributor to the economy (as per the report released by IBEF), the recent regulatory framework set up aims better transparency, allowing only the players with integrity to sail through. Against this backdrop, the Union Budget 2018-19 is looked upon for reforms in the tax arena in the form of tax incentives and rationalization of certain provisions of the Income-tax Act, to foster better growth of the sector and help in reducing the demand-supply gap. While the list of expectations from the union budget 2018 is long, key expectations are listed below:
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Budget recommendation 2018 | Industry status to the full Real Estate sector:
It is a known fact that the real estate sector contributes to over 15 per cent of India’s GDP directly or indirectly. It has been demanding ‘industry status’ since long. In its absence, developers are forced to borrow at higher rates, which get impacted by delays in construction due to long approval process, which leads to an increase in the final cost of homes, negatively impacting the end consumer.
In the union budget 2018, bring the entire real estate sector under the ambit of ‘Industry status’, instead of restricting it to only the affordable housing segment – this would help in creating surpluses in the Indian housing demand along with financing at the lower rate for long-term projects.
Budget recommendation 2018 | Rationalisation of GST:
Where, ‘Roti, Kapda and Makaan’ are termed as basic necessities of a common man, the Indian real estate sector is burdened with very high levels of taxation. Different types of taxes and charges are levied at state and central level, which is highly detrimental to both, the growth of the sector as also making it affordable for the consumer. To reproduce surpluses for the purpose of Housing for All, there is a great urge to create a housing revolution like aviation, telecom and agriculture sector. Expectations from the union budget 2018 are very high in the real estate sector.
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Speedy rationalization of the tax structure with a uniform level of rates is the need of the hour. NAREDCO has urged the government to cap goods and services tax (GST) rate across the real estate sector to 6 per cent with Input tax credit, to help boost demand for housing.
The industry body has also urged the government to increase the abatement for the land cost to 50 per cent, from the existing 30 per cent, as the cost of land forms the most significant part of any real estate-project cost.
Budget recommendation 2018| Taxation | Capital Gain Tax:
To overcome the huge housing shortage in the country, the union budget 2018 should look into the restriction imposed on investment of sale proceed on acquiring one residential house should be removed and scope broadened to exempt capital gain tax if the sale proceed is invested in housing activities to create one or more housing stock.
Deduction of Interest on Home Loan for the property – In case one takes a home loan for the purchase, construction, repair, renewal or reconstruction of one’s house property – the interest is allowed as a deduction from the Net Annual Value. Deduction for interest on money borrowed is allowed on an accrual basis. The total amount allowed towards this deduction is Rs 2, 00,000 beginning assessment year 2015-16.
In case of a let out or a deemed to be let out property, the entire interest was allowed as a deduction under section 24 till Financial Year 2016-17. From Financial Year 2017-18 deduction for interest on let out the property was allowed only up to Rs 2 Lakh; which NAREDCO recommends to bring back original deduction under SEC 24 of entire interest amount.
Removal of Taxing Notional Rent –Taxing notional rent after one year from the end of financial year in which completion certificate is obtained will lead to serve financial implications.
NAREDCO suggested in the union budget 2018 that entities engaged in real estate business should be exempted from burden of tax on notional rent income. Also, government can look upon extending the period of 1year to atleast 5years or government may give credit for tax paid on notional income at the time of actual sale of property if above case is not possible.
Budget recommendation 2018 | Rental Housing:
In Indian cities, the share of rental housing in total urban housing stock is considerably low in comparison to the developed world where it is between 40 to 50 per cent. With the Indian economy poised to grow at 8 to 9 percent per annum and huge job opportunities in urban areas are expected, migration is unavoidable. We, therefore, need to construct more rental housing stock and have a provision for the same in the union budget 2018 to deal with the looming housing shortage in Urban India.
Under section 24 of the Income Tax Act, one is allowed to make a certain deduction from the Net Annual Value of one’s House Property. There are two deductions available under Section 24 as follow which includes our suggestion as follow:
Standard Deduction – Standard Deduction currently allowed is 30 per cent of the Net Annual Value of the house property. NAREDCO has appealed to increase the deduction from 30 per cent to 50 per cent to boost the demand.
In conclusion, Finance Minister makes housing, infrastructure, and construction key issues for the Budget to focus on, the multiplier effect on the economy will be extremely positive. There are several aspects that have the potential to trigger growth in realty market and for that, the Budget and related policy changes will have to ensure that the advantages of economic policy changes and new regulatory regime are not diluted. Single window clearance system in place to expedite approvals, ease of doing business policies and Infrastructure boost for perennial job creation is mandated for economic growth traction.
~ Mr. Niranjan Hiranandani is President, National Real Estate Development Council (NAREDCO), which works under the aegis of Ministry of Housing & Urban Poverty Alleviation, Government of India.