Last few budgets have left the real estate sector ‘almost untouched’ with no announcements directly benefiting the sector. Further, post introduction of Negative List regime, ambiguity has arisen regarding exact service tax implications on various charges recovered by developers. Developers and investors are wading in troubled waters due to reduced demand, liquidity crunch and delayed projects.
Considering the gravity of the situation, a bailout package of fiscal and monetary measures is needed to give boost to the sector by lowering interest rates and liberalizing regulations for increased foreign & domestic funding in this sector coupled with relevant tax incentives.
Some of the key expectations/wish list of the sector from the forthcoming budget are:
Steps should be taken to institutionalize India’s real estate sector through widening the funding options to achieve quicker financing for real estate projects and give investors an alternate source of investment. Some steps in this direction could be:
Liberalization of foreign direct investment (FDI) regulations for real estate sector and wider access to financial markets.
Introduction of Real Estate Investment Trust regime for tapping foreign and domestic retail investors in commercial rental properties.
Infrastructure status to the real estate industry for FDI, External Commercial Borrowing and domestic bank lending.
Cascading effect of stamp duty has been a major reason for non-registration of deals and for alternate conveyance options. Introduction of uniform stamp duty rates and stamp duty credit will reduce costs for ultimate buyers and foster transparent deals.
Increase in deduction on housing loans (principal/ interest) thereby enhancing disposable income in the hands of individuals
Special Economic Zones (SEZ), once touted as tax/ duty free enclaves have lost their sheen due to withdrawal of Minimum Alternative Tax (MAT) and Dividend Distribution Tax (DDT) exemption. Investors in SEZs with a long term development vision are exploring avenues for exit or de notification. Restoring DDT and MAT benefits could help in salvaging SEZs.
Tax holiday available to affordable housing allows 100 per cent deduction of capital expenditure in the first year of business set up. Currently this deduction does not benefit Developers, since business of developing housing project does not involve capital expenditure as the construction and land is stock in trade and not a capital asset.
Tax holiday for hotels under Section 80ID should be further extended to new hotels set up post 1 April 2013. Further the period of tax holiday should be increased to 10 years from 5 years, keeping in view the long gestation period in this industry.
It should be clarified whether charges for preferential location, parking and other charges recovered by a developer/ builder can be treated as on same lines as basic sale price from a service tax perspective.
The real estate sector is a critical sector for the Indian economy. It has a huge multiplier effect on the economy and therefore, is a big driver of economic growth. Therefore it is imperative that growth of the sector be maintained and policies and incentives that aid the development of the sector are introduced.
(Maadhav Poddar, Associate Director – Tax & Regulatory services, Ernst & Young)