12/02/2019 , by , in EXPERT ZONE

Real estate sector has been going through rough weathers since past couple of years. Demonetization, GST on under construction property including development agreements, increased funding pressure and lack of demand severely impacted the real estate sector. Albeit some of the measures taken by the Government in the recent past like implementation of RERA religious in some of the state, reducing the GST rate for affordable housing projects, liberalizing External Commercial Borrowing (ECB) by allowing LLP to access foreign funding, etc. has provided some breather to the bleeding sector. The real estate fraternity has been constantly making representations to the Governments to introduce various measures to provide boost that the sector is the second largest after the agriculture contributing to the GDP growth of the country and supporting more than 250 industries apart from it be the second largest employment provider.


The Finance Minister seems to have appreciated the concerns of the real estate industry and proposed few good changes which will provide the much needed interim booster to the sector to revive. Some of the fiscal proposals proposed in the Budget 2019 are highlighted below:


  • Individual tax payer having taxable income up to Rs. 5 lacs will get full rebate. As a result and considering various deductions and allowances,  an individual earning income up to Rs. 10 lacs will be subjected to nil taxation;
  • Standard deduction for salaried employees raised from Rs.40,000 to Rs.50,000;
  • Exemption from  levy of Income Tax on notional basis is extended to two self-occupied house properties and as result a person having two house properties for self-occupation will not be subject to taxation on notional basis;
  • Exemption u/s 54 of Income Tax, Act will now be available if the capital gain on sale of existing residential house is up to Rs. 2 crores and such capital gain is invested in two residential houses instead of one house. This benefit can be availed once in lifetime;
  • The threshold for withholding tax from payment of rent is increased from Rs.1.80 lacs to Rs.2.40 lacs.;
  • The present tax exemption in respect of profits and gains from the business of development of affordable housing projects u/s 80IBA of Income Tax, Act will be available if the housing project is approved by the competent authority till 31st March 2020;
  • The period of exemption from levy of tax on notional rent on unsold inventory has been extended for two years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority.


These proposals will provided the much needed impetus to the sector as highlighted below:


  • Given that the income of the AAM AADMI up to Rs.10 lacs will not be subjected to Income Tax, it will result in additional cash in the hands of the people. This will strengthen the purchasing power of common man and will inspire them to purchase their DREAM home.
  • The extension of exemption from notional taxation in respect of self-occupied property up to two houses will encourage people to purchase houses in different cities especially the young generations who stay away from their families in different cities to make their career.
  • The extension of exemption in respect of capital gains uptoRs. 2 crores will enable the people living in tier 1 and tier 2 cities to dispose of their existing property and purchase two or more properties to accommodate the growing families. This incentive, coupled with exemption from notional taxation in respect of two self-occupied properties will further stimulate the demand for mid-segment housing especially in tier 1 and tier 2 cities.
  • The increase in threshold for WHT from rental payments up to Rs. 2.40 lacs will reduce the pain of the occupiers of the property and will also help to increase the demand for rental housing to some extent.
  • The extension of one more year granted to the real estate developers from levy of taxation on notional rent on unsold inventory will provide the required breathing space to the developers given the present funding crises and the lean demand for housing. This will enable the developers to manage their financial position as well as avoid distress sell situation in the market. The expectation of the real estate fraternity was to remove this scheme of notional taxation on unsold inventory and therefore to that extent this extension will help a very limited manner.
  • Real estate sector supports more than 250 industries apart from generating employments for both skilled and unskilled laborers. The increase demand and supply for housing will increase the economic activities of these 250 plus industries which will create positive circular impact.
  • The extension of window for approval of affordable housing projects by one year i.e. 31st March 2020 is a very positive move as it will attract more developers to venture into the affordable housing projects across the country and avail the tax exemption in respect of such affordable housing projects. This will facilitate creation of higher stock of affordable housing across the country and will also help to achieve the vision of the Government “Housing for all by 2022”. Secondly, the tax exemption available to the developers in respect of such affordable housing projects will encourage the developers to pass on some part of their benefits through price reduction thereby making the houses more affordable for the common man.
  • The tax saving benefit of Rs.18,500 crores that would be created in the hands of 3 crore middle class tax payers will increase the purchasing power of the middle-class community and will encourage them to purchase their DREAM home, which not only provide them a sense of PRIDE but also give them a sense of confidence and security.
  • The increase in the demand in the affordable segment will create more opportunities to the EPC Companies. Further, this will also provide impetus to build physical and social infrastructure to create a holistic ecosystem surrounding the affordable housing program.


In summary, the direct tax proposals of the Budge 2019 is a welcome move given the current economic and political scenario in the country and more importantly the Global developments. The fiscal proposals will certainly have a very positive and progressive impact on the overall economy and more particularly for the real estate sector. These proposals will create more demand for the houses as well as more supply of houses in the affordable housing segment. This increase in the demand – supply matrix will further boost the economy and lay down the foundation for the overall growth of the economy.


Authored by JayeshKariya, Chartered Accountant



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