February is always an exciting month for the common man. We eagerly wait for the Union Budget and forecast as it sets the tone for investment and expenditure every financial year. This year was especially crucial as people had high hopes and expectations in the post-COVID context. For real estate, the announcements were a bit of a mixed bag with benefits for homebuyers but limited benefits for the real estate sector on the whole.
So, how do home buyers benefit from the budget?
For one the Union Budget 2021 has extended the provision for the additional deduction of Rs.1.5 lakh on interest paid on home loans by one more year to help purchase affordable housing. It is worth noting that houses can be considered in the affordable housing category when they are valued under Rs.45 lakhs.
Real estate experts and consultants have welcomed this announcement and agree that this will definitely see an uptick in demand for homes and encourage more supply in the segment.
There is already an exemption of Rs. 2 lakhs on home loan interest payments so effectively a total exemption of Rs. 3.5 lakhs until March 31, 2022.
Real estate experts also predict that the pricing of affordable homes may go down further because of the government’s decision to extend the tax holiday period for real estate developers on affordable housing projects for one more year.
This extension basically makes it easier to purchase a new home for first-time buyers as the overall cost is reduced. Homebuyers should look for housing finance companies that extend pre-approved offers to speed up the loan application process.
In order to boost the demand for the housing sector, the budget has also relaxed capital gains tax implications around stamp duty value adoption for real estate developers. This means that there will be no enhanced capital gains tax implications if the value of the land or building is less than stamp duty value by up to 20 percent.
Boost for rental housing
To incentivize rental housing, the Budget has also proposed tax exemption for notified affordable rental housing projects. This will help people like migrant workers and those from lower-income groups to rent homes affordably.
A Stimulus to REITs and InvITs
In what is hailed as a progressive move, the finance ministry has announced stimulus for REITs and InvITs (Real Estate Investment Trusts and Infrastructure Investment Trusts) with the exemption of tax deducted at source(TDS). Another welcome move is the debt financing of InVITs and REITS by foreign portfolio investors by making relevant amendments in the legislation. This will further help access of finance to InVITs and REITs, enabling funds for infrastructure and real estate businesses.
While the budget has provided some encouragement for homebuyers and the real estate sector, one measure that can provide significant impetus to the real estate sector is giving it an industry status. The real estate sector is hopeful for measures like Input Tax Credit and other GST reforms. We hope that the government will announce further beneficial measures for the sector in near future.