How Union Budget -2022 should address the real estate sector?
Real estate sector affects 250 plus segment of other industries and it is also covered by 100+ regulatory laws. In our view there are number of areas which UnionBudget-2022 should address. Union Budget may be the evident of the landmark changes be it in policy changes in the various schemes, taxation, funding and others.
What can be the core area of focus which this budget -2022 could observe real estatesector?
In our view, the budget will address the housing sector and moreover the affordable segment because government has committed to delivering “housing for all” by 2022, to provide affordable housing for the rural and urban poor, and affordable rented accommodation for migrant workers.
What is the first issue you would like to say about the affordable housing?
Government has intended to provide the housing for all. Affordable housing is generally for low income families and for the same there should be single criteria for all the applicable laws and stakeholders of the sector.
You would be amazed to see that there are multiple definitions available for the affordable housing which leads to creating confusion in decision making to the builders developing the affordable housing projects and which in turn leads to non achieving the objective statement of government for affordable housing.
A notification of Department of Economic Affairs states that “Affordable Housing” is defined as a housing project using at least 50% of the Floor Area Ratio (FAR)/Floor Space Index (FSI) for dwelling units with carpet areaof not more than 60 square meters whereas in GST law, 2 criteria should be satisfied to fall under the definition of affordable residential apartment, first is area based criteria (i.e. the 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities) and second is consideration based criteria i.e. maximum cap of value of the apartment should be INR 45 lakhs . In income tax, a builder claiming the deduction u/s 80-IAB the stamp duty value should not be exceeding the INR 45 lakhs.
Infact, you would see that everything is not aligned specially when all these things are made for the only intention of the government i.e. affordable housing. Alignment will help builders for the right decision making which in turn will assist to complete the target in time.
Looking COVID scenario, what do you expect in the budget?
Meeting timeline has been a biggest constraint in the COVID period and therefore you can see that for the pending litigations, even the Apex Court has extendedthe limitation periodfour times for such cases.Government is also known about this that how real estate sector is badly affected due to this.
We expect that there can be an extension in the time limit u/s 80-IAB of Income Tax where a builder can claim a deduction of an amount equal to 100% of the profits and gains derived from such businessprovidedthe project is approved by the competent authority on or before 31st March 2022 and the project is completed within a period of 5 years from the date of approval by the competent authority.
Time line should be extended for further 2 years in both of the conditions and these should be read asthe project is approved by the competent authority on or before 31st March 2024 and the project is completed within a period of 7 years from the date of approval by the competent authority
Another relief we may expect in the provision where the deemed rent is charged on the property remains in stock after 2 years postobtaining the completion certificate.Not only those builders who got the completion certificate just before the spread of COVID could not materialise in the commercial market but also whose projects which are near tothe completion stage are also likely to suffer the COVID side effects. Therefore the government should extend the period by 2 further years.
Real estate sector has been streamlined in GST law; do you have any further expectations in that?
Where a affordable residential apartment is booked by a customer in the under construction phase then he has to pay the tax @1.5% on the 2/3rd of the gross amount charged and benefit of input tax credit is not permissible to the builder. Further, Builder has to comply with certain conditions including a scenario where has to have the inward supplies of input and input services from GST registered suppliers to the minimum extent of 80% on yearly basis in a project, failure of which invites the liability to pay the tax on reverse charge basis @18% on the shortfall as compared to the said 80%.
It is very normal that many vendors are from unorganized/ semi organized sector (like sand etc.) and builder has to buy the products and avail the services from them only which does not justify the 80% condition.
Our view is that condition of reverse charge should be omitted looking the pricing of consumer category of affordable housing as the condition of paying the tax on reverse charge mechanism increases the cost.
Anything else, you would like to say at the end?
This is a point from the logical end. On sale of ready property, GST is not levied but stamp duty is levied. But in the case of sale of property at the under construction stage, both are levied. This anomaly should be removed by making the changes in the law which will help for the sector and stakeholders at large. At least for the affordable housing there should be a relief.
It gives relaxation to builders and assesses if government will give some extension on timeline for any projects. Time line should be extended for further 2 years in both of the conditions and these should be read as the project is approved by the competent authority on or before 31st March 2024 and the project is completed within a period of 7 years from the date of approval by the competent authority
Thank you for giving the opportunity and wishing for the best time for the citizens.