DELHI: The real estate sector has been a major driver of India’s economic growth as it contributes 6.3 percent to the nation’s GDP (2012-13) and is a major source of revenue for central, state and local governments.
Since the opening up of the Indian economy to foreign investors in 2005, the sector has attracted more than US$22 billion through foreign direct investment and is expected to attract US$180 billion by 2020. However, over the past few years, it has been facing several issues, such as increased land prices, rising cost and scarcity of raw material, funding constraints, slump in sales, numerous approvals and a significant time required to obtain them, and uncertainties on the tax and regulatory fronts.
However, there’s no denying that the sector has substantial growth potential, which is evident from a burgeoning middle class, significant high urbanisation, shortage of affordable housing, proposed development of new cities and industrial corridors, signs of revival in the global economy and the corresponding positive impact on the Indian economy.
The need of the hour is for the government to reform its policies for the real estate sector and tax regulations to provide the much-desired fillip to the sector.
Here are some suggestions that can be brought in the upcoming budget to initiate the process:
1. Service tax credit on construction activity is not available against output service tax liability on renting immovable property. Credit of input service tax paid on construction service should be allowed to avoid cascading effect of taxes.
2. Budget to be more buyer-centric and make reforms to revive real estate sector.
3. Industry status for affordable housing: The Reserve Bank of India characterises the sector as ‘risky’, which deters it from accessing funds. Considering that it generates significant employment opportunities and contributes to the GDP, the sector should be given an industry status, which will help it access bank funding at better interest rates and reduced collateral values.
4. Revoke the LARR Act 2013 and make only landowner’s consent mandatory.
5. The government should consider providing specific tax holiday benefits for affordable housing projects to provide further impetus in meeting the objective of “affordable housing for all”.
6. To avoid practical difficulties in complying with the provision of TDS on purchase of immovable property and hardship on real estate companies who are burdened with the task of substantiating the claim for tax deduction, section 194-IA should be deleted.
7. To take steps to improve investor interest by implementing Real Estate Investment Trusts (REITs). it is imperative that the tax provisions relating to taxability of stakeholders in a REIT structure should be announced in the upcoming budget.
8. Policy support to incentivise affordable housing and permit higher tax exemption limits on interest and principal repayments for home buyers.
9. Clarification on taxation of Joint Development Agreements (JDAs) to settle the ambiguity on capital gains tax incidence for land owners.
10. Implement GST.