Budget 2014: Suggested amendments for real estate
Jul 07, 2014
Source : The Times of India


DELHI: The real estate sector happens to be one of the very important sectors for the overall growth of the economy. Since the new government, led by Prime Minister Narendra Modi, has taken a pragmatic view of providing housing to all by 2020, it becomes very important that certain amendments are made in the law for the real estate sector.

Finance Minister Arun Jaitley is urged to take a pragmatic look at the Income Tax Act and think of providing certain amendments in the Income Tax Act which will act as a booster to the ailing real estate sector.

Here are key suggestions for the Finance Minister:

Higher deduction for interest on loan

In 2001, the Finance Minister raised the deduction limit for interest on housing loan from Rs 30,000 to Rs 1,50,000 for individuals and Hindu Undivided Families (HUF).

In the last 14 years, the prices of the houses have gone up. The overall money in the hands of individuals has also gone up and this is evident from the fact that new real estate development and the investment which is made by home buyers is also going up.

Likewise, due to the increase in the salary structure and many more millionaires and multi-millionaires coming up, there is demand for housing. Presently, the deduction available for the housing loan is just Rs 1,50,000 per annum, which means on an average, a house can be purchased for just Rs 15 lakh and the deduction for interest on loan being allowed up to Rs 1,50,000 only.

The government should increase the deduction for interest on housing loan to minimum Rs 2,50,000 especially in view of the rising prices. For a new home buyer, if the entire interest on housing loan is allowed as a tax deduction, surely the sector will boom.

Tax exemption for developers building small housing projects

Presently, the developer has to pay income tax on his income whether he develops a residential house of 1,000 sq ft or 10,000 sq ft. Thus, if the government wants the developers throughout India to construct houses for the common man, it should grant exemption in the income tax to the developer.

In fact, this type of tax deduction was permissible earlier in the past through Section 80IB (10), which provided complete exemption to the developer if a housing project was taken on minimum 1 acre of land and the houses were built up to 1,000 sq ft in metropolitan cities or 1,500 sq ft in other cities of India. The developer should also be asked to cut down the selling cost. Such dynamic approach can help in resolving the housing problem in the country.

Stamp duty rates to be cut down

Throughout India, the rate of stamp duty is different for real estate transactions in different states of India. If the government really expects a big boom and growth in the real estate sector and would like to have fast turnaround of property buying and selling transactions, then it is the right time to bring the concept of stamp duty in India, which is applicable overseas where half per cent or one per cent stamp duty is payable.

Investment restriction on commercial property

Right now, if a person sells his residential property he is able to save tax on capital gains by investing in another residential property. Similarly, if a person sells out his agricultural property, he has got the freedom to invest in another agricultural land and save his Capital Gains Tax.

But, if a person sells his commercial property, he does not have the freedom to reinvest in any other commercial property or a commercial space in a mall or a shop. Hence, the Income Tax Law should be amended to allow investment in commercial property out of the sale of another commercial property to save tax or Long Term Capital Gains.

If this small amendment is made, the government has nothing to lose but the advantage will be that the otherwise dull real estate sector will flourish.

Bring in REITs

In the last nearly ten years, plans have been drawn up by the government to popularise and implement the concept of Real Estate Investment Trust (REIT). This is already a well-developed business concept in USA and other countries of the world. Sometimes back, I met an Indian who is settled in USA and who has 10,000 residential apartments under the concept of REIT.

The government should make realistic rules and regulations for framing guidelines to set up REIT. There should be special provisions for the small investors to form REIT.

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