How Does Budget 2020 Impact the Indian Real Estate Landscape?

  • Budget 2020 Impact the Indian Real Estate Landscape
    6Feb 2020

    Minister of Finance, Nirmala Sitharam presented the Union Budget 2020-21 on February 1st in New Delhi. The Real Estate Sector of India will be impacted with this announcement. The FM said, “Fundamentals of the economy are strong and that has ensured macroeconomic stability. Inflation has been well contained. Banks saw a thorough cleaning up of accumulated loans of the past decade and then they were recapitalized.” Here are the key highlights

    Affordable Housing

    The key point of focus for the real estate sector remains the realisation of the goal of “Housing for All” in the last budget FM had announced an additional deduction of up to one lakh fifty thousand rupees for interest paid on loans taken for purchase of an affordable house. The deduction was allowed on housing loans sanctioned on or before 31st March, 2020. In order to ensure that more persons avail this benefit and to further incentivise the affordable housing, Sitharaman proposed to extend the date of loan sanction for availing this additional deduction by one more year.

    Further, in order to boost the supply of affordable houses in the country, a tax holiday is provided on the profits earned by developers of affordable housing project approved by 31st March, 2020. In order to promote the affordable housing projects, the finance minister propose to extend the date of approval of affordable housing projects for availing this tax holiday by one more year.

    Green Indian Real Estate

    Eco-friendly or green buildings segments have witnessed a huge growth in the Indian real estate segment. Reports suggest that the Indian green building market alone is poised to increase by 10 billion sq. ft. by the year 2022, driven by factors such as increasing awareness level, environmental benefits, and government support.

    Concession to real estate transactions and tax rates for co-operatives

    While taxing income from capital gains, business profits and additional sources in favour of transactions in real estate, if the consideration value is more than 5 percent by less than the circle rate then the difference is counted as income both in the hands of the purchaser and seller. In order to reduce hardship in real estate transactions and provide relief to the sector, FM proposed to increase the limit of 5% to 10%. Co-operative societies perform a remarkably significant role in our economy in promoting access to credit, procurement of inputs and marketing of products. These cooperatives are currently taxed at a rate of 30% with surcharge and Cess. FM proposed to present an option to cooperative societies to be taxed at 22% plus 10% surcharge and 4% Cess with no exemption/deductions.

    The sector however has reacted with cautious optimism to the Budget 2020, expressing their disappointment with lack of big-ticket announcements to revive the slow progress in the sector but still hoping that the government takes policy initiatives to resolve long standing issues.

    Hiranandani Communities’ Dr. Niranjan Hiranandani President, National Real Estate Development Council (NAREDCO) said, "Marathon Budget 2020 has set a positively direction tone but failed to announce much awaited economic stimulus to fuel kick-start of $5 trillion economy. It subsequently lacked incremental allocation inadequacies with over emphasis on fiscal prudence and inflation target. With economy in doldrums and acute slump in consumption, efforts on demand creation incentives went missing.”

    “Tax benefits extended to both homebuyers and developers in affordable housing sector will encourage more launches in this segment. Also, abolishing of Dividend Distribution Tax and opening of International bullion market scores eyeballs for global investors to draw investment in Indian IFSC,” he said. While the budget was a disappointment for real estate, Dr. Hiranandani added some positive points as well, “The Budget proposals seem structured for medium- to long-term results...commercial real estate segments may witness a boost, thanks to the focus on warehousing, data centres, schools, hospitals, and hospitality. “

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