CREDAI National Recommendations On Taxes For Budget 2021-22
Real Estate Sector has been under stress for more than 2 years. Economic uncertainty enforced by COVID 19 Pandemic has only made it worse for the sector. After battling for survival, the sector is slowly moving towards revival.
Ensuring liquidity, access to funds & longer repayment cycles will aid developers and continuous supply required for achieving “Housing for All by 2022”. Cheaper home loans, tax benefits on investments in housing shall boost demand and rReforms in taxation related to affordable housing, Joint Development & Steps to promote Foreign investment are the need of the hour
The recommendations are as follows-
- Affordable Housing – Section 80 IBA: The projects approved till March 31, 2023 be made eligible as a few days after a few days after the announcement for extension was made, a complete lockdown was announced due to COVID, thus disrupting the real estate operations and construction activities for almost 6 months. Thus, the extension of Sec 80 IBA given to real estate developers could not be utlised by them to its complete potential. In order to make the scheme of “housing for all” to be successful, the time limit for approval of projects should be extended to March 31, 2023.
- Section 80 EE Deduction of interest on Home Loan: An individual is allowed to avail deduction of interest on loan for acquisition of a house. However, the deduction is allowed only on loans sanctioned between 1.4.2016 and 31.3.2017 and the amount not exceeding Rs. 50,000. The timeline for the loan may be extended to March 31, 2022 in line with Housing for All by 2022. The limit of deduction allowed may be increased to Rs. 2 lakh and limit of loan be increased to 50 Lakhs and stamp value of residential house should be increased to Rs. 65 Lakhs. The measure would be an incentive for home buying and healthy growth of the Financial Sector’s balance sheet.
- Principal Repayment of Housing Loan: As per the present provision, the ceiling of deduction for principal repayment of housing loan is INR 150,000 Further, the above deduction is clubbed with other tax saving instruments. We suggest that the deduction under section 80C for principal repayment of housing loan should be increased from existing limit of INR 150,000. The deduction for principal repayment of housing loan can be considered for a separate or standalone exemption. This increase in the deduction for principal repayment of housing loan will encourage the home buyers to invest in homes.
- Real Estate Investment Trust (REIT)
- Section 80 C Relaxation in provisions related to REITs – REITs are one way of solving the liquidity problem in real estate. At the same time, it offers the investors a choice to diversify their portfolio. At present, there is no provision. We suggest an extension of exemption under Section 80 C to investments in REITs starting with Rs. 50,000.
- Section 2(42A) Period of holding of REIT/InvIT units to qualify as long-term capital asset – Currently the Units of REITs need to be held for 36 months to make them a long-term capital asset eligible for lower tax rate. We suggest, the period of holding for units of REIT to qualify as long-term capital asset should be reduced to 12 months (as applicable for listed shares) to qualify as long-term capital asset, in place of 3 years. This will lead to faster adoption of REITs and bring the units held in REITs at par with investment in listed securities. The very idea of having compulsory listing of REIT/InvIT is to create liquidity to encourage small savings into the real estate/infrastructure sector.
- Provisions relating to Joint Development Agreements Section 45 r.w.s. 2(47): Section 2(47) defines transfer of a capital asset to include, inter-alia, any transaction that immovable property allows possession to be taken or retained under a contract referred to in section 53A of the Transfer of Property Act, 1882. 45(5A) of the Act should be made applicable to all the assesees owning land and should not be restricted to only individuals and HUFs. The amended provisions should be applied irrespective of whether the land-owner owns the land as capital asset & to all types of JDA arrangement including area share or revenue share. Further, the tax liability should arise in the manner similar to the mechanism provided u/s 45(2) with respect to the capital asset converted into stock in trade. It is recommended that suitable instructions/guidelines/rules be issued for the tax treatment of JDAs after obtaining the comments from the stakeholders to avoid litigation.