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Seeks exclusive Rs 200,000 deduction for principal repayment U/s 80 C and to double interest on home loans for self occupied property from Rs 150,000 to Rs 300,000.
Current status
Indian realty sector is current going through a rough patch on the back of current economic slowdown. The industry that witness meteoric rise on the back of strong GDP growth between year 2004-2008 has off-late seen slow down in demand as erosion in capital and loss of confidence level of investors/ buyers.
Moreover the industry also stares unprecedented liquidity crunch on the back of global economic crisis even pushing some companies to the brink of failing in their debt and other repayment commitments. The industry players having built their land banks aggressively were saddled with huge debts. And with cash flows dried up with slowdown in demand for housing/ commercial stocks and inability to liquidate the land assets in current weak market the company were hard pressed making the scenario worst.
Fiscal stimulus announced in December 2008 - January 2009 has given some relief to developers and buyers but there is lot to be done to pull the real estate industry out of the current crisis.
Industry wish list
Restructuring of developers debt allowed upto June 2009 has to be extended beyond that period wherever required as the recovery of realty sector is likely to take more time.
Section 80 C benefit ceiling should be raised to Rs 3 lakh from current Rs 1 lakh and of which Rs 2 lakh should be allowed exclusively for principal repayment. Currently Sec 80 C allows Rs 1 lakh deduction on various payments / deposits including principal amount of housing loan.
Under Section 24 of IT Act, the deduction on account of interest payment on housing loans is currently 100% for rented dwelling units and Rs 1.5 lakh for owner occupied houses. U/s 24 of IT Act the 100% deduction on interest payment should be made available for both rented as well as owner occupied houses. In case 100% deduction is not agreeable, then the limit of deduction should be raised from Rs 1.5 lakh to Rs 3 lakh.
Section 80IB of IT Act that provides 100% tax exemption on income from housing project was available on projects approved before 31st March 2007 and this date was not extended in Finance Bill 2007, the concession on projects sanctioned after 31st March 2007 has ceased.
Group housing and integrated township development should be brought with in the definition of infrastructure and made eligible for tax exemptions u/s 80IA.
Housing Sector should be granted status of industry for all concessions, rebates and easy finances for giving proper boost to a very important sector of economy.
To generate interest of developers in LIG/EWS housing, where supply is negligible and demand huge, it is suggested that concessions under Section 80IB(10) of IT Act available before 31st March 2007 be restored and all conditions except area of residential units be removed to make it more realistic.
Capital gain from transfer of residential property if invested in acquiring one residential house is exempt from income tax U/s 54 of IT Act and this restriction of one house should be removed and capital gain should be exempted from income tax if it is invested in acquiring one or more residential property.
Deduction upto 40% of profit derived from business of providing long term housing finance, as applicable before 2007-2008 should be restored. Currently U/s 36(1) (viii) of IT Act its 20% of profit derived from business of providing long term housing finance is deducted from income, provided it is carried to special reserve. This will improve thin margin of Housing Finance Companies (HFCs) and increase their lendable resources.
A deduction for bad and doubtful debts equivalent to 10% of the doubtful and loss assets is available to banks currently U/s 36(1)(viia) of IT Act. This should be extended to Housing Finance Companies as that available for banks and all the bad debts should be considered for deduction on provisions made and interest de-recognized as per the Regulators' directions. This will go a long way for the sustained growth of the Housing sector.
Income from investment by HFCs in housing projects, which were treated as infrastructure is exempted U/s 10(23G) of IT Act earlier and was omitted by Finance Act 2006 w.e.f. April 1, 2007. This has to be reintroduced.
Rental income derived by renting out residential property from 1.4.2009 would be exempt from Income tax for five consecutive years if the built up area of the unit does not exceed nine hundred square feet. This provision would be applicable only for such residential accommodation, which is ready for occupation on or after 1.4.2009.
Like Infrastructure Fund, a Dedicated Affordable Housing Fund should be created exclusively for EWS/LIG housing and lend to developers at cheap rate of interest.
There should be parity between banks and HFCs as far as risk weight (RW) and Capital adequacy requirement (CAR) are concerned. CAR for Housing finance companies is 12% as compared to 9% for banks even though the risk weight on housing loans is same for Banks & HFCs at 50% for loans upto Rs 30 lakh with LTV upto 75% and for loans above Rs 30 lakh it is 75%.
Residential housing projects should be taken out of service tax net. Service Tax on complex services was introduced through finance bill 2005. It is an additional burden on homebuyers and deterrent for housing development.
Restriction imposed on ECBs in housing and real estate sector should be lifted. It will help reduce cost of fund and property prices.
Stamp duty charged by States is very high and that should be brought down to 2-3%. It should also be made uniform in all States / UTs.
Launch of REIT should be expedited. It will boost supply of fund to the sector.
Higher rate of depreciation (say 30%) should be introduced on residential accommodation if built by the employer for its employees.
Incentives for slum re-development
Analyst expectations
The Government could increase the tax exemption limit on interest payments to Rs 2.5 lakh per annum in respect of loan for self occupied house property. It could also encourage / incentivise affordable housing.
Stock to watch
Unitech has chalked out greater focus on higher number of projects/ volumes in affordable housing segment and it will be the major gainer if the GoI doles out more sops for affordable housing.
Other major players to benefit include DLF, Sobha Developers, Puravankara Projects, Parsvnath Developers.
Outlook
There is huge demand for realty / housing assets in India at affordable prices. But the supply is available at the higher end, and the situation is worsened by expectation of further fall in prices, which has even made genuine buyers/ potential customers to wait for correction.
According to 11th five-year plan document the demand for residential space in the country is huge. It has put India's housing shortage (including backlog) at around 26.53 million units! Given this fact the GoI is all expected encourage the private sector to focus on affordable housing that is housing units less than Rs 30 lakhs and Low income housing.
