Govt extends tax sops for affordable home developers

New Delhi: Looking to boost sluggish housing sector, the government on Friday proposed extending tax sops given to real estate firms for developing affordable housing until next fiscal and tax exemption on notional rent for unsold inventories for two years.

While presenting the interim budget for 2019-20, Finance Minister Piyush Goyal also proposed certain incentives to individuals tax payers that would have positive impact on the real estate sector, which is facing a multi-year demand slowdown.

The government announced that capital gains of up to Rs 2 crore could be rolled over for investment in two housing units from the current one unit only. It also exempted tax on notional rent on a second self-occupied house.

In his budget speech, Goyal said benefits under Section 80-IBA of the Income Tax Act are being extended for one more year, i.e, to housing projects approved till March next year. This proposal would boost supply of affordable housing.

Under Section 80-IBA, 100 per cent deduction of profits is being provided to an assessee engaged in developing and building affordable housing projects subject to certain conditions related to carpet area among others.

To give impetus to the real estate sector, he proposed to extend the period of exemption from levy of tax on notional rent on unsold inventories from one year to two years. The period would be counted from the end of the year in which the project gets completed.

According to property consultants, there are about 6-7 lakh of unsold units with real estate developers in seven-eight major cities because of poor demand. This proposal will give a relief to those developers holding unsold units.

Goyal further said that the benefit of rollover of capital gains up to Rs 2 crore under section 54 of the IT Act would now be available for investment in two houses from the present only one residential unit. This benefit can be availed once in a life time.

"Currently, income tax on notional rent is payable if one has more than one self-occupied house. Considering the difficulty of the middle class having to maintain families at two locations on account of their job, children's education, care of parents etc. I am proposing to exempt levy of income tax on notional rent on a second self-occupied house," the finance minister said.

Goyal also proposed that the TDS threshold for deduction of tax on rent to be increased from Rs 1,80,000 to Rs 2,40,000 for providing relief to small taxpayers.

"Our government wants the GST burden on home buyers to be reduced and accordingly we have moved the GST Council to appoint a Group of Ministers to examine and make recommendations in this regard at the earliest," the finance minister said.

At present, GST on under-construction houses is 12 per cent and 8 per cent for affordable homes. There is no GST on completed housing units if the developer has received occupancy certificate.

The industry is seeking a lower GST to boost the demand.

Goyal also highlighted that the real estate sector is becoming transparent after the passage of two legislations -- the Real Estate (Regulation and Development) Act, 2016 (RERA) and Benami Transaction (Prohibition) Act, 1988.

The Section 80-IBA was introduced in 2016 Budget and then amended in the 2017 Budget, by relaxing the condition of period of completion of the project for claiming deduction to five years from earlier three years. The size of units should be 30 square metre carpet area in case of municipal limits of four metropolitan cities while for the rest of the country, including in the peripheral areas of metros, limit of 60 square metre applies.