Indian Union Budget 2021-22: Considering the past year had been marred by the Covid- 19 pandemic, the country was looking forward to the 2021 Union Budget with the hope for a better year ahead. The lockdown in 2020 caused low consumption and the lack of physical movement had restricted high value decisions eventually bringing real estate to a standstill. The focus for the Government in the FY 2021- 22 is now on the sharp increase in capital expenditure to complement the pent- up demand which further creates economic traction that results in job creation and increased confidence. The government’s intent to deliver a growth oriented budget was well- received, the fate of which would depend on how the expenditure would be handled in the current financial year.
The real estate sector of India had high expectations from the Union Budget especially since the sector has been reeling from not only the impact of Covid- 19 but also from the policies that had been implemented prior to the lockdown. The industry had thereby set expectations on the sector growth because of the multiplier effect it has on the economic growth. However, we had expected the government to do more for the sector because of the multiplier effect it has on the economic growth. The government’s measures in 2020 of maintaining an accommodative stance on repo rate, six-month moratorium on EMIs, SWAMIH fund, stamp duty reductions in Maharashtra and stimulus 3.0 package have only provided some relief. However, the Budget provided an opportunity to consider lowering GST on building materials, no GST on JDA and TDR, extended the tax benefit from affordable to mid housing would have made a significant impact. Additionally, allocating additional capital for distressed funds could have eased the liquidity needed for last mile funding, allowing FDI in ready to move in inventory to unlock capital and provide for liquidity to NBFC, Banks and Developers. Likewise, capital gain tax on notional rental income beyond permitted limits would have helped.
The Budget 2021 has the potential to lay the roadmap for economic recovery of the real estate sector in the post-Covid world. In future, as the economy moves on the path to recovery, along with the ongoing digitization, the economy will witness huge traction which will attract global investors and commercial real estate will benefit from it. For the investor community, we are pleased with the proposal to make dividend payments to REITs (Real estate investment trusts) and INVITs (Infrastructure investment trusts) exempt from TDS. The Indian real estate sector is at an interesting juncture and I strongly believe REITs will define the future as they allow investors to expand their range of properties. One of the indirect benefits in the budget leading to lesser compliance burden is the exemption of tax audit threshold being raised to Rs. 10 crore (from Rs. 5 crore) where 95% of receipts are received in digital form. The Finance Minister’s plan to introduce a Bill to set up a DFI (developmental financial institution) for long-term funding infra projects with a capital of Rs 20,000 crore and lending Rs 5 lakh crore in the next 3 years is a great move for India’s sustainable infrastructure.
The role of NRI homebuyers and their increased interest amid the pandemic has been truly appreciated by the sector. The government’s decision to reduce NRI residency limit from 180 days to 120 days and the simplification of double taxation complications will help the sector cater to this demand better. Monetization of land is likely to provide more land for development and arrest its rising cost making the projects more viable if implemented efficiently within 12 months. One of the indirect benefits in the budget leading to lesser compliance burden is also the exemption of tax audit threshold being raised to Rs. 10 crore (from Rs. 5 crore) where 95% of receipts are received in digital form.
Overall, this year’s Budget was a mixed bag for the sector- with some eventual benefits that can be witnessed however it still leaves the questions of liquidity unanswered and unaddressed.
The author is MD & CEO, Tata Realty and Infrastructure