Industry seeks incentives for affordable housing

Hyderabad: The real estate sector has remained on the growth path in 2022, a trend which is likely to continue in 2023 as well. India continues to be an attractive market for investors globally. The realty market's resilience and continued traction are expected to curtail the impact of global headwinds on the property-buying decisions of investors and individual occupiers.

The industry experts say that the real estate sector could become more productive and thrive if certain regulations and taxation blocks are eliminated in the upcoming Union Budget 2023-2024, particularly those concerning the deduction of interest for customers looking for a home loan and also the tax load on developers working on affordable homes and rental housing.

National Real Estate Development Council (NAREDCO), an apex body formed under the aegis of the Ministry of Housing and Urban Affairs (MOHUA), Government of India, recommended amending certain sections of the Income Tax Act and incentivising business entities and individuals planning to invest in the real estate sector.

Rajan Bandelkar, President, NAREDCO said, "The year 2022 has seen a rise in sales of residential properties and a revival in commercial leasing. To keep up the momentum, measures need to be taken to bolster confidence in the industry. Expanding the deduction available for home loans under Section 24 (b) from Rs 2 lakh to Rs 5 lakh will stimulate demand and lessen the housing deficiency in the nation."

The apex industry body has also urged the government to remove Section 23(5) of the I-T Act. "Developers should be exempted from the burden of tax on notional rental income under Section 23(5). The idea of notional rent levied on development companies from the properties held as stock in trade opposes the idea of the promotion of rental housing in India," he added.

NAREDCO has proposed the guidelines related to the profitability of budget-friendly housing projects under Section 80IBA. Also, the advancement of rental housing in India should be viewed from a more realistic standpoint, it said. Section 80IBA allows a deduction equal to 100 per cent of profits and gains derived from the affordable housing project.

Parveen Jain, Chairman of NAREDCO said, "Meeting the necessary criteria outlined in Section 80IBA is strict, causing most cities to be unable to comply. Consequently, the Section should be updated to accommodate the evolving needs of the industry. Constructing a project in metropolitan cities where the properties cost less than Rs 45 lakh is difficult."

Additionally, it is not realistic for firms to consume 80/90 per cent of FAR when taking on a large-scale project. Section 80-IBA (6) (da) incentivises rental housing projects notified on or before the 31st day of March 2022. "In addition, many States have yet to decide on a rental housing policy. Thus, the time period for offering incentives to developers should be prolonged to a minimum of five years," he said.

The apex body has also recommended that the Section 194 IA which relates to a TDS on the immovable property should not include deposits and other capital payments. Currently, 1 per cent TDS is deducted by the buyer at the time of purchase of immovable property from a resident seller, on the consideration of Rs 50 lakh or more.

NAREDCO has recommended amendments to the provision of deductions under Sections 54 and 54EC. According to Section 54, a person who sells a house can be exempt from paying capital gains tax if they use the sale proceeds to buy or build two homes. The body has proposed that the rule needs modification so that the money can be used to purchase three properties.

On the other hand, Section 54EC restricts exemption for investment in capital gains bonds up to Rs 50 lakhs. NAREDCO said that the ceiling for making an investment in specified assets should be removed. It will help the government in generating funds at a much lesser cost – a measure that will boost infrastructure in the country.

Dr Niranjan Hiranandani, Vice Chairman, NAREDCO opines, "In order to accomplish the goal of Housing for all, real estate developers should be encouraged to create surplus rental housing with tax incentivisation. We recommend increase in standard deduction in rental housing up to 50 per cent and incentivise service rental apartments by allowing accelerated depreciation."

He also said, "The tax on notional income from house property held as stock in trade needs to be waived off completely to boost real estate investment. In addition, cap on affordable housing should be capped up to Rs 1 crore in metro cities as broader spectrum of homebuyers can avail the benefit of CLSS scheme, as industry witnessed growth of first-time homebuyers post pandemic." Hiranandani additionally emphasised on granting infrastructure status to avail long term cheap funding as this interest rate sensitive sector is grappling with inflation led high cost of credit borrowings. This will allow developers to build and deliver housing projects at an affordable cost. Commercial real estate services and investment firm CBRE also expected the affordable housing push to be carried forward.

Anshuman Magazine, Chairman & CEO - India, South East Asia, Middle East & Africa, CBRE and Chairman, CII Northern Region, said: "The limit of principal deduction on housing loans under Section 80C of the I-T Act shall be increased to at least Rs 4 lakh per annum from Rs 1.5 lakh per annum at present. This tax deduction can also be entirely moved out of section 80C."

Currently, notional rent on a second completed, non-self-occupied/ let-out property is taxable. Homebuyers can save up to Rs 2 lakh in taxation by offsetting their home loan interest against this notional rent. It is recommended that this tax be removed, or the Rs 2 lakh limit be raised to drive capital toward the residential sector.

Anshuman recommended removing 20 per cent long-term capital gains tax on the sale of house property and reducing the holding period for a property from 24 months to 12 months so that there is no capital gains tax liability for the same. In addition, the cap of Rs 2 crore on capital gains for reinvesting in two properties should also be removed. "While the SWAMIH fund recently got a capital infusion of Rs 5,000 crore, we recommend increase in its overall size to Rs 50,000 crore. As post-Covid-19, last- mile funding to stressed housing projects has become imperative to boost residential activity and consumer sentiments," he said, while recommending relaxations to be provided under the External Commercial Borrowing (ECB) framework.

"The real estate sector needs to be given industry status. We expect policies and reforms that will further boost the industry, like tax breaks, single-window clearance, encouragement of home purchase, and rationalization of GST for raw materials. Home purchasing needs to be incentivised through higher tax deductions," said Ramesh Ranganathan, CEO, K Raheja Corp Homes.

He adds, "The residential property holding period needs to be revised downward from 36 months to 12 months, for qualification as a long-term capital asset. To ensure a seamless balance of supply and demand, promote ease of doing business and drive further investments into the industry, a single-window clearance system is the need of the hour." Atul Monga, Founder and CEO of Basic Home Loan, said: "The home loan sector is an important part of the Indian economy and is facing some challenging times due to the rising interest rates. To foster growth in the sector, lenders need to offer competitive loan products with sensible pricing and attractive repayment terms. This can help the sector stay competitive and provide budget certainty."

The current GST structure for under-construction and affordable housing creates an additional burden on developers, leading to a higher cost of properties for buyers. This leads to a higher price of a house because the GST on steel and cement is 18 per cent and 28 per cent, respectively and developers cannot claim tax credits for GST paid on input items.

To reduce this burden and increase the affordability of properties, the government can consider restoring Input Tax Credit (ITC) in the upcoming budget. Further, capping GST at 1 per cent for under-construction projects and reducing raw material costs such as cement and steel can help encourage more people to buy affordable homes.