Pro-growth budget for the economy and real estate
February 2nd, 2018
The Indian realty sector has been one of the primary beneficiaries of Union Budgets over the last couple of years. Significant reforms and initiatives such as infrastructure status for affordable housing, extension of income tax benefits up to 60 square metre-sized apartments, amendments in Real Estate Investment Trusts (REITs) have been rolled out to accelerate the growth of the real estate in the country. These were strengthened further with the implementation of Real Estate (Regulation and Development) Act, 2016 (RERA) and Goods and Services Tax (GST).
Continuing with the reforms for the overall economic development, the Union Budget 2018-19 was focused on the rural sector, agriculture, Micro, Small & Medium Enterprises (MSME), infrastructure sector, senior citizens, middle-class, healthcare and vulnerable sections of the society. Through these provisions and a series of structural reforms, India is slated to become one of the fastest growing economies of the world. It is also on course to achieve over 8 % growth as manufacturing, services and exports are back on the growth trajectory. Additionally, the Government aims to bring down the fiscal deficit of 3.5 percent for the financial year 2017-18 to 3.3 percent for the financial year 2018-19. Prioritising investment in improving the healthcare, social infrastructure and agriculture is commendable and will help sustain long-term demand for housing. This will propel a well-rounded growth of the economy.
For the realty sector, there were some important takeaways. One of them was the proposal to provide that there shall be no adjustment made in a case where the circle rate value does not exceed 5 percent of the consideration. At present, taxation of income from capital gains, business profits and other sources with respect to transactions in immovable property is based on consideration or circle rate value, whichever is higher. The difference is considered as income for the buyers and sellers. This move will simplify real estate.
Affordable housing continues to be a beneficiary of reforms. During the budget, the Government announced the creation of a dedicated affordable housing fund in the National Housing Bank (NHB). This will further supplement the recent initiative of rationalized GST of 8 percent for affordable housing and revised consideration of carpet area of 30 and 60 sq. metres instead of built-up area of 30 and 60 sq. metres, which was announced last year.
In addition to this, the proposal of dividend distribution tax of 10 percent on the equity-oriented mutual funds to be brought at par with Long Term Capital Gain (LTCG) of 10 percent will encourage consumers to look at real estate as favourable investment option. This will create a conducive environment for housing sector, propelling the demand. Furthermore, the move to lower the tax slab from the earlier 30 percent to 25 percent for corporates with a turnover of INR 250 crore in Financial Year 2016-17 , the Government has ensured that almost 99 percent of the MSMEs are benefitted.
While some of the critical concerns of the realty sector has been addressed in the last few years, the long-awaited demands for industry status and single-window clearance would have further bolstered the reforms in the sector.