The Union Budget 2017 was largely geared towards rural growth, infrastructure, and poverty alleviation, with a huge impetus to affordable housing. The realty sector, however, also witnessed some changes on the tax front.
Here are the key tax changes you need to know:
1. Change in carpet area: First, the government has tweaked the definition of affordable housing projects under the scheme for 100% deduction of profits from tax of an undertaking. Earlier, flats up to built-up area of 30 sq. metres in four metro cities and up to 60 sq. metres in other cities were to be considered under the scheme, which has now been changed to ‘carpet area’ and the 30 sq.m. limit now applies to only within the municipal corporation limits of the four major metros. Moreover, this time period has extended from three years of approval to five years.
“We expect that these moves will definitely aid supply in the affordable segment by ensuring that a greater number of projects will come under the ambit of the scheme, which has remained largely under-penetrated till now, despite immense pent-up demand,” says Anshul Jain, Managing Director, Cushman & Wakefield, India.
2. Reduction in holding period for land and building: The FM has reduced the holding period for land and building from 3 years to 2 years for long-term capital gains purpose. “This would help improve invest ability in properties in comparison to shares and stocks where the period is 1 year,” says Neeraj Bansal, Head of Real Estate and Construction, KPMG in India.
You may also like to watch
For investors, the announcement regarding a reduction in holding period from gains from immovable property for long term capital gains tax from 3 years to 2 years will result in lower tax liability and help to boost individual investments in the sector.
3. Taxation of capital gains of joint development agreement: The budget proposes to change the prevalent practice and has clarified that the landowner entering into a joint development agreement for development of the property shall be subject to capital gains tax upon completion of the project. “This is a significant change, which is much needed, to bring clarity on the aspect and avoid litigation with the department, which was invariably a norm given the current ambiguity,” says Rashmi Deshpande, Associate Partner on Real Estate, Khaitan & Co.
4. Change in time period for calculation of notional rental on unsold stock: In a major relief to housing developers, the Finance Minister has also changed the time period for calculation of notional rental on unsold stock held by developers for tax purposes, which will now kick in only 1 year after completion. Housing developers have been suffering from major cash flow problems in the past couple of years as there is substantially high unsold stock in most of the cities due to the suppressed housing demand. The demonetization has compounded their problems with a further slowdown in sales. This measure provides them with some relief and the opportunity to focus in pushing the sales of their stock.