Indranil Bhoumik/Mint
Indranil Bhoumik/Mint

What the four big changes in real estate mean for you

A strong push has been given to the affordable housing sector by giving it the status of 'infrastructure'

Union Budget 2017-18 has focussed a good deal on real estate. Homebuyers, developers and investors, all stand to benefit from it. Some categories of investors may have lost out though. Here are four major changes in real estate, which emanate from this budget.

Affordable housing gets a boost

A strong push has been given to the affordable housing sector by giving it the status of ‘infrastructure’. This will attract more investments and funding to the sector and may result in bringing down the cost of capital for developers.

In addition, the criteria of qualifying for affordable housing has been changed from a built-up area of 30 sq. mt in metro areas and 60 sq. mt in non-metro areas, to a carpet area of 30 sq. mt and 60 sq. mt respectively. This would make the affordable housing units more attractive for the buyers, as they will be able to get bigger houses.

“This should amplify the interest of developers further, to build more affordable projects, thereby increasing supply," said Sunil Mishra, chief strategy officer, PropTiger.com.

Further, the permission to complete affordable housing projects in 5 years instead of existing requirement of 3 years—to qualify for tax exemption under section 80IB of the income tax Act—is a big relief for developers.

Developers are now also allowed to keep their unsold inventory without attracting any income tax liability, for up to 1 year after receiving the completion certificate for their housing projects.

Redefinition of long term

The reduction of holding period—from 3 years to 2 years—to qualify for a long-term capital gains (LTCG) status, will benefit investors in real estate.

Currently, the short-term capital gain (STCG) from property investments are taxed at the slab rate which is applicable to the individual. On the other hand, LTCG is taxed at 20%—this excludes cess but comes with the big advantage of indexation.

In addition, the base year for indexation will be shifted from 1 April 1981 to 1 April 2001, for all classes of assets including immovable property. “It will help property owners to ascertain the fair market value of a property bought much before 1981, as it will be relatively easier to ascertain the fair market value of a property as on 1 April 2001," said Amit Maheshwari, managing partner, Ashok Maheshwary & Associates LLP. This may result in further bringing down the capital gains and subsequently the taxes on the capital gain.

The government will also introduce more financial instruments for parking the capital gains to save tax.

According to prevailing tax rules, Rs50 lakh of the long-term gains from sale of property can become tax free, if invested in specified bonds under section 54EC of the Income-tax Act, 1961.

Currently, these specified bonds include only those from the National Highways Authority of India and the Rural Electrification Corporation Ltd. The new products will make it easier for investors to park their capital gains.

Loan-bought rented properties

At present, a home loan borrower can claim tax deductions under section 24(b) against interest paid on home loan. The current limit allows a deduction of up to Rs2 lakh for payment of interest in case of a self-occupied house. If the house is let-out, then the entire interest paid on home loan can be claimed as a deduction.

To remove this anomaly, the tax deduction due to interest paid on rented-out properties, which are bought on loan, will be restricted to Rs2 lakh.

However, the additional interest that is above Rs2 lakh paid during the year, can now be set-off in next eight assessment years.

Tax deduction at source on rent

If you are living in a rented accommodation and paying a rent of above Rs50,000 per month, then there is some more work ahead for you.

You will be required to make tax deduction at source (TDS) at the rate of 5% while making the payment to your landlord. For instance, if your monthly rent is Rs60,000, you will need to deduct Rs3,000 (5% of Rs60,000) and pay Rs57,000 to your landlord.

Giving some respite to the tenants, the TDS collected by the tenant can be deposited once a year, for the whole year.

Beside that, the tenants are neither required to obtain tax deduction and collection account numbers (TAN) nor to file a TDS return to do this.

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