The Union Budget 2023-24 will be presented at a time when the global economy has come out of the shadows of Covid-19 but is faced with new challenges. While the global economy is facing recessionary pressures, the Indian economy is relatively well placed. The Indian economy is resilient, led by its foreign exchange reserves, credit growth etc, and is likely to clock in GDP growth of 6.8% for FY2023. On the real estate side, the year 2022 has proven to be one of robust growth, after two years of subdued activity. However, the upcoming budget comes on the heels of rising interest rates on housing loans, elevated inflation levels and slower external demand impacting corporate decision-making. The Budget should focus on stirring demand for affordable housing, sops for the start-up community and incentivising sustainability in the real estate sector. While in 2022 demand remained upbeat in the real estate sector, the upcoming Union Budget can provide a stimulus to the stakeholders, to ensure the momentum continues in 2023.
“The upcoming budget is a highly anticipated one. While on the residential side, the rising interest rates are slowing demand in the affordable and mid segments, the limit in the tax deduction on interest paid should be increased from the current INR 2 lakhs to about INR 3-4 lakhs in case of self-occupied property and to be allowed without any limit in case of let out property. A hike in interest deduction will encourage the homebuyers to invest in the real estate and increase the demand in the market. On the commercial front, it will be a huge breather if investments in REITs can get exemption under section 80C, starting INR 50,000. Moreover, sovereign green bonds can be given a further push which could attract investments and enhance green development”, said Ramesh Nair, Chief Executive Officer | India & Managing Director, Market Development | Asia, Colliers.
Benefits to home buyers to boost demand in mid and affordable housing segment
Further, 100% tax holiday for affordable housing projects under Section 80IBA can be continued which was earlier only extended till 31 March 2022. This can provide a boost to rental housing in the affordable segment.100% exemption for rental income up to INR 3 lakhs for houses costing up to INR 50 lakhs can directly incentivize owners to rent out their houses to the targeted segment.
Separate deduction for principal repayment
There should be a separate deduction for the repayment of the principal amount of the home loan, which is currently clubbed under section 80C. At present, the ceiling of deduction for principal repayment of housing loan is INR 150,000 along with other tax saving instruments. Alternatively, the overall ceiling limits of section 80C can be raised up to INR 500,000 which can further spur investments.
Softening input costs load
Raw material costs have been constantly on the rise since last three years when they touched highest levels in March 22 led by supply chain constraints. Average cost of construction rose 10-12% YoY. The government should take steps to reduce the GST on such materials especially cement which corresponds to 28% of the total cost. Input Tax Credit (ITC) can also be levied on raw materials to boost commercial and residential development.
Tax benefits for REITs to attract more investments
The presence of high-quality tenants has led to uninterrupted revenue for the REITs, ensure stable returns to unit holders. The budget should make provisions for tax reductions in REITs by reducing TDS rate from the present 10%. This will give a major thrust to the sector and improve the flow of working capital. Further, investments made in REITs can get exemption under section 80C, starting INR 50,000, this can provide a thrust to the investors.
Start-up-centric initiatives for higher investments in innovation and tax breaks
Start-ups can be offered with policies that can reduce input costs, enhance liquidity, and stimulate financial enclosure for certain sub-sectors. The budget can infuse certain assistance to save time and financial savings in forming a business. For instance, registering for GST, obtaining MSME certifications, number of tax filing, tax slabs, etc. for firms qualifying under Start-up India Scheme can be done through a single window clearance system. A separate tax and regulatory framework can be created for Private Equity/Venture capitals and start-ups.
Incentivise development of green/sustainable buildings
The government can provide incentives to companies who are engaged in climate responsive projects. Developers and investors who are engaged in building green buildings can be exempted from income tax for any 10 consecutive years in a 15-year block. The sovereign green bonds announced in the previous budget should be further given a push in during 2023. As India gears up to implement the strategies addressed during COP 27, a robust sovereign green bond framework would aid in raising funds and improve investor confidence. The government can also create a 5-year plan to steadily scale up the usage of green bonds.
Budget likely to augment reduction of logistics costs and extend subsidies for EVs
The budget is expected to align with the National Logistics Policy, which would attract more investments in developing connectivity projects and logistics infrastructure through PPP model. To reduce the overall logistics cost, it shall give exemption from GST on all international transportation services. The government should also plan incentives for developers to adopt green warehousing concepts. To further electric mobility, subsidies for electric vehicles (EVs) are likely to get extended under Faster Adoption and Manufacturing of Electric Vehicles (FAME-II) scheme and shall also include light to heavy commercial vehicles in the scheme.
