Realty sector pins high hopes on Budget FY'24

Hyderabad: As the Centre will present Union Budget 2023-24 on February 1, the real estate experts are anticipating a big boost to the realty sector, which may positively impact the Indian economy. The housing and construction industry is one of the largest contributors to India's GDP and the second largest employer in the country.

The sector drives over 200 industries right from manufacturing to services and any incentive extended to real estate can also stimulate all the ancillary industries. While the residential market has bounced back in 2022 on the back of the ongoing resurgence in demand, the industry experts expect more measures to be taken in the Budget to sustain the demand momentum.

Global property consultant Knight Frank India recommended focused tax deduction on principal repayment of housing loans under Section 80 C to improve homebuyer affordability. At present, Section 80 C of the Income Tax Act does not provide for a focused benefit on housing which is the largest and most important expense item for most taxpayers during their lifetimes.

Shishir Baijal, CMD of Knight Frank India, said: "Investors have numerous investment alternatives to choose from and the lack of exclusive tax benefit on the principal amount of home loans makes them indifferent towards a house purchase. A separate annual deduction of Rs 1.5 lakh for principal repayment will improve affordability and provide the much-needed fillip to opt for home loans."

He also recommended hiking the home loan deduction limit under section 24 and relaxation of capital gains criteria to support homebuyers and improve affordability. He says, "Section 24 currently allows for a deduction of Rs 2 lakh on housing loan interest. This needs to be extended to Rs 5 lakh to boost affordability and housing sales."

Shishir explains, "Under section 54 of the Income Tax Act, long-term capital gains from sales of existing house can be utilised in buying or constructing a new property. If the investment for exemption is done through an under- construction property, it can be claimed only if the construction of the property is completed within three years of sale of the earlier house."

Residential projects are continuously increasing in scale in terms of number of units, height and amenities which causes them to have completion timelines in excess of three years. Also, while the implementation of RERA has caused an improvement, the completion timelines of under-construction projects frequently exceed deadlines.

This causes significant hinderances to homebuyers in setting-off capital gains in under-construction properties. To mitigate this, Knight Frank India recommended that the completion timeline of under-construction properties be extended to five years instead of the existing three. It also suggested improving financial viability of affordable housing projects.

Affordable housing project registration deadline to avail tax holiday under section 80IBA has lapsed. The property consultant asks for reintroduction of the section 80IBA registration timeline. The 100 per cent tax holiday for affordable housing projects under Section 80IBA, was available for projects which are approved till March 31, 2022.

"This section allowed developers to claim 100 per cent tax exemption on profits subject to several qualification criteria including the approval deadline. Since this is arguably the most materially meaningful measure to boost the viability of affordable housing projects, we believe it is important to revive this measure once again," Shishir said.

He also proposed 100 per cent exemption for rental income up to Rs 3 lakh for houses up to Rs 50 lakh to boost rental housing in the affordable segment. This will encourage individuals to invest in the affordable housing segment which suffers a massive housing shortage. Given the low rent yields, owners of such houses avoid letting it out.

This measure will directly incentivise such owners to rent out their houses to the targeted segment, augmenting the efforts to increase housing stock in this segment. Similarly, real estate bodies like Confederation of Real Estate Developers' Associations of India (CREDAI) gave recommendations to increase tax exemption on interest paid on home loans, and exemption on rental incomes.

Harsh Vardhan Patodia, President of CREDAI, said: "Our recommendations are focused on sustaining the current growth in the sector, boosting demand and exemptions for homebuyers. The sector can add millions of livelihoods in a short time. The rate hikes may cause short-term turbulence in overall housing demand when buyers are optimistic about making decisions."