CREDAI recommendations for the Union Budget 2020-21: Satish Magar

The president of CREDAI (National) Satish Magar has some recommendations for the upcoming Union Budget.

CREDAI, CREDAI (National), Satish magar, Union Budget, GDP, Agriculture, Post-world war II, RERA, GST, IBC, Housing for all, Income Tax, Home loans, Section 43 CA, Home buyers, Section 80 IBA, Affordable housing, Chennai, Delhi, Kolkata, Mumbai, Liquidity shortage

Real estate, accounting 8% of GDP is the second largest employer after agriculture. The trends of the post-world war II period indicate that the real estate has not only contributed to GDP but has also helped in ensuring a better quality of life and promoting equitable distribution of income.

Over the last few years in India, the real estate sector has to cope with institutional changes including RERA, GST and IBC. The fall in the growth of GDP from trend rate of 8% to around 5% has also adversely affected the demand side in real estate. This is because homes are a part of discretional expenditure by households. Equally, decline in the rate of GDP entails downward adjustment in demand for shops and offices.

The growth seized of the need to take direct measures for the revival of real estate sector as a part of measures to boost GDP growth. The change in IBC, setting up of stressed funds are amongst the steps in the recent past intended to spur the investments in the real estate sector. The budget 20-21, therefore, would provide the government an occasion to boost the real estate demand as also continue to encourage private sector investment particularly in affordable housing, in line with the objective of ‘Housing for All by 2022’.

Income Tax
-- Deduction of interest on home loans
An individual is allowed to avail of deduction of interest on loan for acquisition of a house. However, the deduction is allowed only on loans sanctioned between 1.4.2016 and 31.3.2017 and the amount not exceeding Rs 50,000. Following suggestions are made to boost demand for housing.
*The timeline for the loan may be extended to March 31, 2022 in line with Housing for All by 2022.
*In case of individuals, 100% interest on home loan be allowed as deduction for first home.
*100% interest on home loans to be allowed as deduction for 2nd and 3rd home provided that except self-occupied home, others are rented for a period of nine months during the year. The measure is being suggested to boost rental housing.
-- Section 43 CA
Section 43 CA of Income Tax Act is a barrier to natural price correction and the stalled project has a cascading effect on home buyers, banks and other stakeholders and needs to be removed or amended to exempt primary sales or at least allow sale at 30% below circle rate.
-- Section 80 IBA
*The following portion of Section 80IBA should be deleted-
“Where the approval in respect of a housing project is obtained more than once, the project shall be deemed to have been approved on the date on which the building plan of such housing was first approved by the competent authority.’
There should be an exception to this clause to accommodate cases where the construction work has not started after sanction of plan and the developer opts for re-sanction to take up affordable housing.
*The benefit under Section 80IBA should be extended to all affordable housing projects as long as the size of the residential units satisfy the limits on carpet area of the units at 30m2, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai or 60m2, where the project is located in any other place.

*The benefit of ITC be restored to real estate GST by charging GST at 12% with allowance for land cost at 33% on par with current rate of works contract services for government projects.
*Taking into account the output GST being paid on such rentals on commercial leases, the restriction from input tax credit eligibility under section 17(5) (c) and 17(5)(d) of the CGST Act, be removed.

Definition of affordable housing: Following definition may be made universally applicable across all government agencies-
“Affordable housing comprises units with a carpet area as defined under RERA that do not exceed 60m2 in the metros and 90m2 elsewhere.

One Time Restructuring Scheme for Real Estate Projects
Liquidity shortage continues to cause distress in real estate. Hence, a one-time restructuring scheme with moratorium on principal and interest of 2 years is immediately needed.

Easing Flow of Funds for Housing
Housing loan up to Rs 1 crore may be counted towards priority sector and interest rates to be below 7% effectively.

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Sept 2020
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