In an attempt to boost the real estate sector, the Union Government, in its election-year Interim Budget 2019, announced a slew of measures that would escalate the demand for properties, especially in the affordable housing segment. This year’s Union Budget gets big thumbs up from industry stakeholders because it comes at a time when the real estate market is signalling signs of recovery after a sluggish period. Here are the key highlights of the Interim Budget 2019:
Currently, Section 54 of the Income Tax Act allows taxpayers to save on capital gains from the sale of a residential property by investing in one housing property. Budget 2019 proposes a relaxation of conditions, which will increase the benefit of capital gains rollover, enabling taxpayers to invest in two residential properties, instead of one, as currently stipulated under Section 54 of the Income Tax Act. The benefit, however, can be availed once in a lifetime, with capping on capital gains of up to Rs 2 crore. Real estate experts opine that the move will not only give a breathing space to middle-class taxpayers, but it will also provide the much-needed push to incentivize the real estate market.
As of now, one has to pay income tax on notional rent if he/she has more than one self-occupied residential property. But in India, there are several middle-class families who have to keep two houses due to various reasons like accommodation for parents, children's education, or job requirements. The government, realizing this, proposed to exempt income tax on notional rent on the second self-occupied house. Furthermore, the government has also decided to levy income tax on notional rent on unsold inventory after two years, which earlier, was one year. This particular proposal is going to help the real estate developers also as there is quite an inventory build-up in some cities.
In a move that will help rental income earners, Union Budget 2019 increases the limit for TDS (Tax Deducted At Source) on the rent paid by non-individuals, for instance, business corporations. Previously, it was mandatory for non-individuals like corporations to deduct TDS if the rent paid by them exceeded Rs 1.8 lakh in a financial year. The government, in its Interim Budget, proposed an increase in the TDS limit to Rs 2.4 lakh per annum, wherein, deduction of TDS will happen only when the rent crosses Rs 2.4 lakh in a fiscal year. This will particularly offer tax-related relief to people who rent out their property for financial support.
To bring more homes under the ambit of affordable housing, the government plans to extend the benefits available under Section 80-IBA of the Income Tax Act for one more year. This means, all housing projects approved till March 31, 2020, are eligible to enjoy the benefits of Section 80-IBA over and above the gain from income tax exemption on unsold inventories for up to two years. It is expected that there will an additional supply of affordable housing projects as real estate developers will it attractive to develop affordable projects.
The Union Government, to boost its flagship housing scheme - Affordable Housing for All by 2022 - has undertaken many initiatives, such as the Pradhan Mantri Awas Yojana (PMAY), which intends to materialize the government's ambitious plan to provide a home to every Indian citizen by 2022. Though the Union Budget 2019 decreased PMAY's allocation from last year's Rs. 26,405 crore to Rs. 25,853 crore, the government, nevertheless, introduced a dedicated fund for affordable housing to help banks and housing finance companies enhance their exposure in the affordable housing loan segment. This, in turn, will support the PMAY programme and its implementation.
According to real estate market observers, Union Budget 2019 will prove to be lucrative for homebuyers, investors, and developers alike. While an increase in the income tax exemption limit will enhance the purchasing power of potential homebuyers, developers, on the other hand, will benefit from tax exemption on notional rent on unsold inventories for up to two years. Together, this will usher in a favourable ecosystem, triggering positive market sentiment.
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