Pre Budget Expectations from the Real Estate Sector
Real Estate & Construction sector should be given an industry status and other major benefits (available to other industries) imperative for the overall development of the sector. The expectations from the budget are as follows:
•A strong regulatory and effective policy framework like introducing uniform tax regime, rationalizing stamp duty across states through uniform stamp duty policy, formulization of effective single window clearance mechanism of approvals, avoiding multiple levy of indirect taxes, etc., should be in place, which could act as a catalyst in fueling the growth of the real estate sector in the country
•From Foreign Direct Investment and exchange control policy perspective, the Government should come out with detailed guidelines that will facilitate foreign investment and also addresses practical issues that the sector is currently facing such as lock-in period for original investment, meaning of real estate and development, minimum are requirement, meaning of green field projects, exit of investment in specified circumstances, investments under Joint Development Arrangement, etc.
•Some of large real estate development projects such as Industrial Parks, SEZs, Townships, Mass Housing Projects, Affordable Housing Projects and Projects under JNNRUM Scheme should be classified as industrial projects
•One of the criteria to claim the benefits under the Industrial Park Scheme, 2008 is that the number of units in the Industrial park should not be less than 30. Since large areas are occupied by the individual industrial companies, there should not be any restriction on the number of units
•Currently the tax benefits are available to the tax payers only after completion of the projects. However, the developers start earning income from the projects even the projects are part complete and a portion on the project are being let out. These benefit u/s 80IA should be allowed on part completion of project also
•Processes and procedures for approvals, reporting, etc to operationalize the Special Economic Zone policy (SEZ) should be more user friendly
•All services provided and consumed in the SEZ area to a unit or developer, whether provided by the main contractor or sub-contractor, should be exempted from levy of service tax
•Absence of provision for issuance of Form I by the main contractor so that subcontractors can also claim CST exemption, results in additional tax costs. We recommend incorporating a provision for issuance of Form I by the main contractor so that sub-contractors can also claim such CST exemption
•It is imperative to have a single-window of clearances and a high-level body for coordination between different central and state level agencies to expedite the process and award projects at a faster pace. This system is likely to result in approximately 10-25 percent reduction in cost
•Cut-off date for qualifying for tax holiday benefit for housing projects need to be further extended to promote affordable housing projects [under section 80-IB(10)]. Further, the period allowed for completion of housing project need to be extended from the existing 5 years to 6 years under section 80-IB(10)
•In view of the housing shortage in the country and the objective ‘Shelter for All’ all housing related projects to be entitled to the benefits under Section 35AD. The Rules required to be notified under section 35AD needs to be drafted and notified at the earliest
•In order to provide a boost to ‘Rental Housing’, we recommend that Income from renting of properties be taxed at a flat rate of 10 percent. Further, it is recommended that the deduction from rental income under Section 24(a) be increased from 30 percent to 50 percent. This will promote rental housing. For Senior Citizen, the deduction could be 100 percent keeping social requirements
•Real estate in India is subject to various indirect taxes such as service tax; value added tax, minimum alternate tax, etc. Although there is transparency in terms of enactment of these taxes, however such regulations differ between states. Hence, formulation of effective taxation rules to avoid double taxation should be implemented across all states of the country
•The Government should rationalize stamp duty across states through uniform stamp duty policy. A more transparent method of market valuation of property should be put into place to avoid arbitrary/ unfair assessment of property value. Uniformity in stamp duty is likely to enable the buyers to register, thereby increasing the revenue collection of the exchequer
By Neeraj Bansal, Director, KPMG India
(for Accommodation Times)
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