Developers want the stamp duty brought within the ambit of the Goods and Services Tax, by the Government. On the other hand, the buyers are waiting for the creation of the fund by the Government for dealing with the completion of the projects that are under stress.
Both the realty developers and buyers optimistic of the budget 2019 right before the elections, for bringing them good fortune. It has been more than a decade that homebuyers await their property delivery and many of them are still paying EMIs. The high taxes and unsold inventory continue to trouble the developers, on the end.
As told by the member of a flat buyers’ body in the NCR, the Government is required to ease up the completion of projects that are getting stalled due to the funding issues faced by the developers as a result of the ongoing liquidity crunch. A holiday from the EMI payment for so long will only be possible only if the houses are delivered on time.
Has Any Action Been Taken?
The Government of Uttar Pradesh had set up a high-powered committee the previous year, which proposed the formation of a fund for the stressed asset to facilitate the completion of the projects that are yet waiting to be delivered due to the dearth in the builders’ resources.
It was 2018 when the buyers first ever sent their list of expectations to the Finance Ministry for Budget 2018. The prominent ones among the wishes of the home buyers were–
1. The ITC (Input Tax Credit) benefit should be made available to the buyers by the builders.
2. The realty sector has to be brought within the ambit of GST.
3. An amendment of the IBC (Insolvency and Bankruptcy Code) 2016.
4. Designation of home buyers as ‘primary secured creditors’.
These demands have already been fulfilled.
High Hopes of the Developers
The demand of the developers differs from that of the buyers, asking for a reasonable GST rate, which is 18% for the projects of under construction. With a deduction of the 18% by one-third for land, the rate charged on the property’s sale value has remained 12%. Prior to GST, 70% to 75% of the property price (inclusive of the land cost) was held as the abatement for land in the Service Tax system. Thus, Service Tax was levied on the 30% to 35% of the property value.
According to the developers, the limitation of land abatement to 33% isn’t justified since the difference inland cost from one city to another even reaching as high as 80% of the property value on a whole. The abatement should be extended to a minimum of 50% of the entire property value or the land’s original market value.
The GST imposed on affordable housing has already been reduced to 8%, despite the segment receiving infrastructure status. The rate charged on low budget houses till the size of 60 square metre carpet area is 12%, which becomes 8% including one-third abatement for land.
As stated by NARECO, the dwindling of the GST rate to 12% for the under-construction properties and an increase in the land abatement to 50%, by the developers, will curtail the exorbitant GST rate to 6%. Followed by the Income Tax Credit, this rate will get neutral for the end-buyers.
To bring the Stamp Duty within the orbit of the Goods and Services Tax is a proposition by NAREDCO. The Stamp Duty being outside the purview of the GST, enhances the burden of total tax on the home buyers since all the other taxes pertaining to the State and Central come under the GST.
Another suggestion of NAREDCO is the encouragement of rental housing. In order to promote new stock of housing, only 10% tax needs to be levied on the rental income from properties, and to do away with the restriction of adjusting interest deduction on the computation of property loss.
In the words of NAREDCO, an increase in the deduction from rental income from 30% to 50% under Section 24(a) can escalate the effective Rate of Return (RoR) from the renting of property. This would boost rental housing. Keeping in mind the empowerment and social needs of the women, a deduction of 100% will be feasible for the senior citizens, handicapped and women.
There is also an anticipation of the interest deduction charged by home loan to be increased from 2 to 3 lakh rupees by the Government.
The owners of rented homes can avail of the deduction on the payment of interest on home loans under Section 24 (b). 2 lakh rupees are the limit of deduction for rental homes occupied by its owners. Besides, this deduction can be availed by the owners only if the construction of the property has been completed before the end of 5 years counted from the end of the capital borrowing financial year, or after acquiring the property.
NAREDCO demands the deduction on the payment of interest on home loans under Section 24, to be allowed to the homeowners in the year of borrowing capital till the full interest has been paid, at least for one house of the owner. Raising the limit of deduction from the existing 2 lakhs to 3 lakh rupees in the case of houses occupied by owners is an alternative suggested by the body. This is the only solution to lift the housing sector that is wavering due to the huge shortage in supply caused by delay in projects. The buyers will thus, be relieved.
Expectations from the Budget
- As stated by the NAREDCO National President, the biggest wish of the Real Estate industry at present to be fulfilled by the forthcoming Budget, is rationalizing the taxes. This demand is not solely to enjoy reduced tax rates but for the creation of an environment that would help in giving birth to new businesses across the Indian economy. And not to forget, the Real Estate sector is a major part of it.
- Another expectation is the increase of interest deduction limit on home loans, from 2 to 3 lakh rupees.
- Thirdly, the Stamp Duty is anticipated to be included within the concern of GST, which is essential for addressing the longstanding affordability issue being faced by both the home buyers and developers, as soon as possible.
The Realty Industry Loses Hope on the Interim Budget
The forthcoming budget being, an interim one, no major announcement is being expected from it by the Real Estate Sector. But the upcoming general elections gives the industry players a scope to anticipate concession to taxpayers, which would be advantageous for the industry indirectly.
In the words of the Managing Director of the country’s leading realty research company, the affordable housing sector can be encouraged by increasing the principal or interest home loan slabs. This facility should be granted to only those who are purchasing property for the first time. The limit of income tax exemption for every taxpayer is hoped to be escalated since there hasn’t been any revision by the Government for years.
The affordable housing category has moved slightly upwards over the previous 3 years as a result of the Union Government’s several policy decisions, especially the lower GST rate in this segment and the CLSS made available to the buyers.
The extension of the Credit Linked Subsidy Scheme in the last year, December, till March 2022, is one such decision. More home buyers belonging to the middle-income group will get the benefit on home loans. According to the President of CREDAI, this action will boost the progression of this housing category.
Hitches in the Growth of the Real Estate Sector
The managing director of an eminent Real Estate builder based in Mumbai identifies liquidity and affordability as the hindrances to the growth of the industry, at present.
Net GST at 12%
An unreasonably high Stamp Duty charge at 6% to 8%, varying from State to State along with the 12% GST is causing the buyers to shift their focus on living in rented homes than purchasing one of their own.
The liquidity crunch of the Non-Banking Financial Companies, which are the major funding sources for the developers, has lately emerged as a serious issue causing further trouble.
Besides, the norms regarding the eligibility of home loans have been made more rigid. This is leaving out many buyers, thereby obstructing the progress of the realty sector in the long run.
As assessed by the Managing Director and Chairman of a prime global Real Estate Consultant, the impact of RERA and GST in consecutive years have lasted their impact over the industry for the previous 2 years and transformed the way business was conducted earlier in India. The Real Estate sector also did not remain untouched and faced its own share of problems as the different asset classes reacted distinctively to the domestic and global impetus.
He finds the residential realty market depressed despite the slight rise in the number of projects launched since the luxury and premium housing lacks significant consumer demand. The affordable housing stands as the major hope for driving this sector in the times to come based on the small increase in both its demand and supply.
An outcome of the GST Council Meeting
The industry’s long-standing demand of bringing down GST rate to 5% was not generally agreed in the 32nd meeting of the GST Council.
Two proposals were kept in front of the Council:
- Maintaining a fixed GST rate at 12% with the availability of full ITC to the developers. This would remove the difference between the GST charged for affordable and normally priced homes, respectively.
- If the builder has purchased around 80% of his raw materials from suppliers registered with GST then the rate imposed on the property under construction will be 5% and that too, without the benefit of ITC.
The Final Status till Now
As has been reported by the Minister of Finance, a seven-member GoM (Group of Ministers) will be shaped for bringing harmony to the different opinions on the Real Estate affairs. Thus, the demands of the builders and home buyers will be addressed by this team in the next meeting of the Council rather than by the 2019 Budget.
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