The real estate sector, which has been trying hard to come out of the Covid-19 crisis, had high expectations from the Union Budget tabled in Parliament on Monday. While the real sector’s long-standing demands for industry status, GST reforms such as bringing back input tax credit and high tax rebates for all kinds of home buyers were ignored, the government did introduce a few measures aimed at boosting funding and benefiting the affordable housing segment.
Here are some of the announcements:
Tax Holiday for Affordable Housing Extended
In a bid to keep demand for affordable housing buoyant in the fiscal year 2021-22, the government has extended tax holiday for affordable housing projects by another year i.e. until March 31, 2022. The exemption is provided under Section 80IBA. The section allows developers to claim 100 per cent tax deduction on profits from affordable housing projects provided they fulfil certain norms.
The Union Budget also extended the additional tax deduction of Rs 1.5 lakh on interest paid on housing loan for purchase of affordable homes by one more year to March 31, 2022. The exemption is provided under Section 80EEA of the Income Tax Act.
This additional tax deduction of Rs 1.5 lakh over and above Rs 2 lakh was first introduced in the budget last year. Accordingly, those buying homes for the first time, with the value not exceeding Rs 45 lakh, will get an enhanced interest deduction of up to Rs 3.5 lakh.
Union Finance Minister Nirmala Sitharaman in her budget speech reiterated the government’s commitment to promoting affordable housing saying ‘Housing for All’ and affordable housing projects are priority areas for the Centre.
Rental Housing
With an eye on supply of affordable rental housing for migrant workers, the government has allowed tax exemption for notified affordable rental housing projects.
Boost for Real Estate Funding
In a measure that will help the infrastructure and real estate sectors tackle the chronic problem of funds crunch, the Union Budget allowed foreign portfolio investors (FPIs) to enter debt financing of emerging investment vehicles – Real Estate Investment Trusts (REITs) and InvITs (Infrastructure Investment Trusts). The union budget also proposes to make dividend payments made to REITs and InvITs exempt from tax deducted at source. This way, investments made in REITs and InVITs have been made more attractive.
So far, the FPI were allowed to invest in non-convertible debentures (NCDs) issued only by a corporate entity. The Finance Minister announced that the relevant legislations will be amended to attract more investment in the real estate and infrastructure sectors.
REITs and InvITs allow developers to monetize their revenue-generating real estate or infrastructure assets. These instruments, which are new to India, are gaining popularity in the country. The instruments enable investors or unit holders to invest in these assets without actually owning them.
