Budget Wishlist | Restore relief u/s 80 IB (10) for real estate: Omaxe7 min read . Updated: 19 Feb 2008, 01:09 PM IST
Budget Wishlist | Restore relief u/s 80 IB (10) for real estate: Omaxe
New Delhi: Real estate has witnessed phenomenal growth rate in the last few years. While market dynamics have accelerated this pace, the government has taken numerous initiatives to provide the right triggers at the right time.
However, there are still key areas where reforms are needed . The housing sector has for long been seeking the status of infrastructure.
Often enough real estate companies purchase agricultural land in order to step up infrastructure facilities. It is only by creating these facilities that raw land gets converted into developed land, fit for construction of houses and multistoried buildings for residential and commercial purposes, thus augmenting the housing stock of the nation.
• Restore Section 80 IB (10): This should be done for areas less than 1500sqft in order to generate interest of developers in LIG housing where demand far exceeds supply. As Income Tax deduction to developers under this section was available for projects approved before 31 March 2007 and the date was not extended in the Finance Bill 2007, the concession available under this section for projects sanctioned after 31March 2007 ceased
• Assign industry status: Real estate development to be given status at par with industry to enable banks to finance viable projects. At present, RBI discourages the banking system from making construction finance available to developers. By making finance available to developers with proven antecedents, projects will get completed faster and possession would be handed over to buyers/ users on time
• Advances/ loans to developers to be at par with institutions: Banks to provide construction advances / working capitals to developers on the lines of institutional loans to industry
• Reduce stamp duty: In order to reduce transaction cost of housing and discourage black money deals in housing, stamp duties to be reduced to 2-5%. This will generate more revenue to state governments by increasing transactions and helping reduce cost of securitization of housing loans
• Housing finance options for poor: Housing finance currently addresses needs of only middle class. Banking industry and Housing Finance Corporations (HFC) should work out a mechanism that can help address needs of poorer sections and rural households by subsidizsing interest rates, pooling funds and relaxing mortgage requirements as also through instruments like micro financing, community pool funding, agricultural land mortgaging and via annual installments for loan repayment
There should be graded scale of grant, subsidy and loan in such a way that the lowest strata of poor get maximum subsidy and the Economically Weaker Sections and Low Income Groups get a combination of subsidies and affordable loans
• Banks to increase allocation for housing: To improve affordable housing finance for lower and middle-income groups, housing finance to be made available at cheaper rates for which HFCs should be able to avail of low cost funds. Banks could increase their allocation for housing from the present 3% to 5% of their incremental deposit with additional 2% incremental allocation being earmarked strictly for channelizing through HFCs registered with NHB
• Bring down risk weightage on housing/commercial real estate: Risk weightage on housing loan, as applicable now, is 50% for loans upto Rs20 lakh and 75% for loans above Rs20 lakh and for loans on commercial real estate, it is 150%. It is suggested that risk weightage on housing and commercial real estate be brought down to 50% and 100% as it was, earlier
• Encourage mortgage market: Setting up of Mortgage Insurance Companies under Mortgage Credit Guarantee Scheme to be speeded up to encourage secondary mortgage market
• Boost supply of housing/ real estate sector: REMF approved by SEBI to be launched immediately; REITs to be encouraged and necessary guidelines finalized at the earliest. These together will boost supply of fund to housing and real estate sector and enable equity participants reap fruits of high yielding real estate sector
• Open up ECB in real estate sector: ECBs in housing and real estate sector are totally prohibited and the sector is placed on the negative list of the RBI for bank debt, thus, creating scope for private debts. This has led to increase in cost of fund for private developers and together with increase in land cost which has made properties unaffordable. There being huge shortages in housing and real estate in India, opening of ECB in real estate sector will help reduce cost of fund and property prices
• Remove residential construction from service tax net: 12.5% Service Tax on residential construction included in Finance Bill 2006, when Govt. is providing all incentives to boost housing, is a deterrent. This combined with rise in excise duty on cement and steel would raise unit cost by about 4-5%, thereby reducing impact of tax incentives. Residential construction, therefore, should be taken out of service tax net.
• Reduce taxation on housing:
—Deduction @ 15% on tax at source from rental income in case of individual and HUFs and @ 20% in other cases out of gross rental income is very high and should be reduced to 7.5% in case of individuals and HUFs and 10% in other cases
— Principal cost of a house upto Rs15 lakh may be exempted from tax over a 5-year period. This will incentivize low income group and middle income group people and help them in acquiring houses for themselves as also give an immediate boost to the economy. Owners of self-occupied property should be allowed depreciation and deduction for repair/maintenance, renovation and house tax up to Rs10,000/- per year
• Deductions on house ownership: Under Section 24 deduction on account of interest payment on housing loans is permissible to owners of rented dwelling units to the fullest extent. In case of owner occupied houses the limit is set at Rs1.5 lakh. It is suggested that deduction on account of interest payment available under Section 24 should be to the extent of full interest paid for all categories, at least in respect of one house. At present, capital gain arising from transfer of any capital asset is exempt from tax in cases where sale proceeds are invested in acquiring one residential house. Such a restriction is a deterrent to the object of boosting the housing sector, and hence needs to be removed. We propose that this restriction should be removed and the scope be broadened by allowing exemption as long as entire capital gain is invested, whether in one or more houses
• Exemption in case of sale to NRIs: Sale of property to an NRI should be given status of deemed export and 100% Income Tax exemption be made available to builders on income earned by sale of property to NRIs and money earned in foreign exchange.
• Exempt urban land held by assessee as stock-in-trade: In a major change effected during April 1993, most assets were taken out from the levy of wealth tax except for select items like jewellery and bullion, motor cars, boats and yachts that were excluded from such levy so long as they were held as stock in trade. With the same logic, there is no reason for taxing urban land held by a developer as its stock in trade. Similar exemption should be granted to urban land held by an assessee
However, if it is still considered necessary to impose wealth tax on vacant urban land, a distinction needs to be made between authorized and unauthorized developers in the following manner:
This modification will encourage authorized developments and curb speculative activities of unscrupulous developers by imposing wealth tax on their unauthorized constructions
Under Section 45 of the Income-tax Act, gain made on transfer of Capital Asset is subjected to Capital Gains Tax. Basic intention behind this Section is that only when the owner of a capital asset realizes real gain by transfer to an outsider, the gain should be subjected to tax
So far as one company amalgamating into another is concerned, law was amended as early as 1967, to ensure that Capital Gains Tax is not attracted. Recently, other types of re-organizations have also been exempted in order to ensure that Capital Gains Tax is not attracted, when the same persons continue to be owners of business, but in a different legal form.
As the law stands today, it exempts one step in the process of re-organization, but if two steps are taken together, the exemption may get withdrawn. As this is clearly contrary to the basic intention behind the provisions, it is suggested that clauses (xiii) and (xiv) may be amended to provide that the requirement of holding not less than 50% of the voting power by the ex-sole proprietors or the ex-partners need not be fulfilled, wherein the companies concerned get amalgamated into other companies.
Rohtas Goel as CMD of Omaxe and Chairman, National Real Estate Development Council