With the budget just round the corner, developers and members of the industry have a whole list of expectations for the real estate sector. This includes bring about a friendlier tax regime and roll out of some crucial bills like the real estate regulator bill and the GST.
When Arun Jaitley will present his Budget on February 29, 2016, the real estate sector is hoping that it will make taxes simpler for the industry and open up fresh investment opportunities. Primarily, the industry expects clarity on tax rules for investments in Real Estate Investment Trusts (REITs). A REIT allows people to invest in Real Estate much like a Mutual Fund enables investments in the Stock Market. REITs could be a game changer for the real estate industry.
Dharmesh Panchal of PWC feels that REITs are very important for unlocking funds and there has been a huge representation consistently over a period of time for DDT on special purpose vehicles distributing incomes compulsorily. Not a single REIT has been launched is something that is not lost on the government. He is expecting something to be done on that front.
Samir Kanabar, Tax Partner at EY feels MAT to be an another issue. The promoter who is setting up REITs will have a deferment of capital gains. While capital gains are not applicable, MAT is still applicable and that issue needs to be addressed.
The second big hurdle for the real estate sector is the roll out of Goods and Services Tax (GST). It aims to put tax break-ups in a single basket. Homebuyers need not pay different taxes if the GST gets passed.
The Chief Economic Advisor has recommended that real estate be kept out of GST. Industry watchers hope for clarity on this front and on Value Added Tax or Service Tax that homebuyers have to pay.
Samir Kanabar told that the service tax is 14.5 percent including Swacch Bharat cess. There is a gap of almost 3.5-5 percent which needs to get plugged. In that case, it is probable that the government may increase the service tax rate to move towards GST. Service tax could go up and other taxes may come down. There has to be a rural and urban distinction with higher level of deduction for homebuyers in urban areas. The deduction available is 2 lakh rupees on self-occupied areas. For urban areas, it ranges between 2- 4 lakh rupees and 2 – 3 lakh rupees in rural areas.
The Homebuyers has a simple and reasonable expectation from the Budget. A higher tax deduction on home loans has been a longstanding demand of home buyers. Home prices currently average a crore in most metros, and such an announcement could boost buyer sentiment in the market and encourage more people to buy homes.