On the upcoming first of February, Finance Minister Nirmala Sitharaman will present the interim budget. The reason it’s an interim budget is because in the first quarter of the year 2024, the electoral process will begin to determine which party or coalition will take charge of the central government for the next five years. Since this is an election year, it is anticipated that to lure voters, the Finance Minister may propose changes in the tax slabs, aiming to boost the disposable income of the common man.
Additionally, there is hope for announcements related to promoting the carbon-neutral auto sector with innovative and renewable energy. Since coming to power in 2014, the BJP government has focused on enhancing infrastructure, and successful efforts have been made in that direction. The Pradhan Mantri Awas Yojana has also provided people with the gift of affordable housing, but there are still many expectations that the real estate sector has been waiting for over the years. It seems that, like the previous year, Nirmala Sitharaman will make some impactful announcements in this year’s interim budget to boost the real estate sector. Let’s find out what possible announcements could be made and what expectations the real estate sector has from the Finance Minister.
Status of an industry
We’re highlighting that India is primarily an agricultural country, implying that a significant portion of the population depends on agriculture for their livelihoods. After agriculture, the real estate sector is one of the major contributors to employment, involving both skilled and unskilled workers. Organizations like NAREDCO and CREDAI have been advocating for the real estate sector to be recognized as an industry for the past two decades. This year, representatives from these organizations have conveyed this demand to the Finance Minister. If the real estate sector is granted industry status, builders and developers could potentially benefit from easier terms and affordable interest rates on loans for their projects. This could lead to a change in the trend where builders start construction work on projects upon receiving booking payments from investors and users. It might also prompt builders to consider selling completed residential units, similar to how institutions like DDA sell fully-developed properties.
Also Read: Interim Budget 2024: What senior citizens expect from Nirmala Sitharaman
Single window clearance
Before commencing any residential or commercial project, a builder has to obtain clearances from not just one but multiple government offices. Once the construction work is complete, they also need to visit various places to obtain the project’s completion certificate. This entire process can take several months on certain occasions. This is why construction companies aspire for a system where they can successfully handle all types of paperwork in a single office, eliminating the need to go to different offices for each task. Such a system would save time and allow builders to channel their energy in the right direction. The demand for the implementation of such a system has been persistent for at least the past two-and-a-half decades.
Tax benefits on home loans
There is no doubt that post-2000-2001, as the participation of the private sector increased in the housing and construction sector, the number of people realizing their dream of owning a home through home loans also saw a significant rise. With affordable rates and easy terms, a large number of people have opted to buy personal homes rather than staying in rented accommodations, also capitalizing on the income tax benefits available through home loans. Regarding the question of tax relief through home loans, it is noteworthy that whether from a bank or a non-banking financial institution, the loan taken by any customer is divided into the principal amount, which is the original loan amount, and the loan interest. Under the current provisions, under Section 24(b) of the Income Tax Act, a person taking a home loan can claim a deduction on the interest paid on the home loan by declaring a reduction in their total income, and presently, this deduction is a maximum of two lakh rupees.
This provision for a two lakh rupee deduction on home loan interest was introduced several years ago when the average price of two to three-bedroom houses ranged from Rs 20 to 45 lakh, depending on the location and city. However, in the current times, the average price for two-bedroom houses starts from Rs 40 to 45 lakh. In this context, there is a demand to increase the two lakh rupee deduction, given the rising costs of home loan interest payments over the years, and it is suggested to raise it to up to five lakh rupees. If this happens, individuals will experience an indirect boost in disposable income. Considering the possibility of an increase in disposable income or the benefit of tax exemptions, it cannot be denied that there may be a strong inclination among people to invest in the real estate sector.
Hope for a reduction in GST
Cement, steel, ceramics, brass are several sectors that directly impact the real estate sector. Consider materials such as clay or fly ash bricks, cement, and steel; an immediate increase in construction costs occurs when the prices of these materials rise. As a result, builders are compelled to raise property prices. In this regard, there is also a plea to the Finance Minister to consider a reduction or exemption in the Goods and Services Tax (GST) on products indirectly affecting the construction industry. It is anticipated that in the upcoming budget, there may be proposals from the Finance Minister to bring about a reduction in GST or offer discounts on such products. While regular intervals involve discussions on changes in GST rates for various products, during regular and interim budgets, the Finance Minister has the authority to impact the prices of these products through proposed amendments.
Promotion of Affordable Housing
There is no doubt that in addition to the construction cost, there has been a tremendous increase in property prices over the past few years due to unprecedented growth in land prices. In this regard, it is essential for the government to make provisions for making land available at affordable prices. Taking the example of Delhi, about a decade ago, the proposal for the Land Pooling Policy was made to promote group housing societies. However, to date, that policy has not been implemented. Under this policy, construction of thousands of houses is supposed to take place in various peripheral and internal parts of Delhi. In consideration of promoting affordable housing, Finance Minister Nirmala Sitharaman can also consider it. If this happens, along with the public sector’s Navratna companies, many institutions’ group housing societies, which have purchased land under the proposed Land Pooling Policy in various parts of the capital, will have a viable path for construction. In addition to this, the Prime Minister’s housing scheme also plays a crucial role in realizing the dream of a roof over every person’s head. There is a need to give even more impetus to this scheme so that no one in the country remains homeless.
In conclusion, the real estate sector’s expectations from the upcoming interim budget are high, with hopes for industry status, streamlined processes, increased tax benefits on home loans, potential GST reductions, and a continued focus on affordable housing. These measures could not only address current challenges but also foster sustainable growth in the real estate sector, contributing to the vision of housing for all.
(By Pradeep Mishra, Real Estate Expert and Founder, Homents Pvt Ltd. Views are personal)