Budget 2021: Govt could consider providing incentives to states to reduce stamp duty rates on property purchase

In order to meet the Government’s aim of Housing for All, the tax holiday under section 80IBA of the Act should be extended to projects approved up to March 31, 2023.

Over the past few years, the real estate sector has been experiencing a significant slowdown, especially in the residential segment. Just when the sector was beginning to show signs of recovery in the early part of 2020, the COVID-19 pandemic struck that resulted in a slowdown in the sector.

Only commercial real estate has been to weather the storm. Residential, malls, and hospitality have been significantly impacted, while the residential sector has shown some signs of recovery. Since the lockdown was lifted, states such as Maharashtra announced a welcome reduction in stamp duty and premiums, giving the residential sector a boost.

The real estate sector has a significant impact on the economy from an employment and GDP growth perspective. Keeping in mind, the need to sustain recovery in the real estate sector, it is expected the finance minister to provide several measures to sustain the sector.

Given that there is still a large amount of unsold inventory across the country, section 23(5) should be removed.  The section provides for taxation of property which remains unsold for a period of two years from the financial year in which completion certificate is obtained on a notional basis.

Further, there are a number of situations where the market-determined price of residential houses is much lower than the prevailing circle rate. In view of the same, the government should look at extending the relaxation provided in the stimulus package beyond June 30, 2021, which permits residential houses up to Rs 2 crore to be sold at a price that is 20 percent lower than the prevailing circle rate.

In addition, the price of houses eligible for this relaxation should be increased to Rs 5 crore from the current Rs 2 crore to help liquidate unsold inventory.

In view of the encouraging sales where the stamp duty has been reduced by the States, the Centre could consider providing incentives to the States through central schemes such as the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) to reduce stamp duty rates.

Over the past few years, due to liquidity constraints, there has been consolidation in the industry through mergers, and landowners have also been entering into collaboration agreements to be able to complete projects.

In order to facilitate the same business loss and unabsorbed depreciation of amalgamating, a real estate company should be allowed to be carried forward and set off by an amalgamated real estate company.

In addition, provision of capital gains arising from the transfer of development agreements being taxable in the year in which the completion certificate is issued should be extended to all taxpayers and not be limited to individuals and HUFs.  In order to meet the Government’s aim of Housing for All the tax holiday under section 80IBA of the Act should be extended to projects approved up to March 31, 2023.

From the perspective of a homebuyer, the deduction available under Section 24 for interest on loan taken for acquisition/construction of self-occupied house property should be increased from Rs 2 lakhs to Rs 5 lakhs.

Further holding period in case of immovable property, being land or building or both should be reduced for qualifying as a long-term capital asset. Section 2(42A) was amended so as to reduce the period of holding from the existing 36 months to 24 months in case of immovable property, being land or building or both, to qualify as a long-term capital asset.  Consequential amendments for reducing the holding period of immovable property from 3 to 2 years should be made in sections 54, 54F in line with the amendment in section 2(42A).

The successful launch of two REIT issues over the past two years has been extremely encouraging for the commercial assets segment. The holding period for units of REIT for qualifying as long term capital assets should be reduced from 36 months to 12 months in line with listed equity given the similar nature of the instruments. In order to further encourage REIT launches provisions relating to deemed dividend and foregoing of losses on change in shareholding beyond prescribed limits should not be made applicable to REITs.

Losses under the head House Property is currently available to be set off against income of any other head to the extent of Rs 2 lakhs which is quite discouraging provision for commercial asset owners where the major source of income is Rental Income. The prescribed limit to set off of house property losses should be removed or the limit of Rs. 2 lakhs should be increased to 5 lakhs.

From a SEZ perspective date of notification for IT/ITES SEZs should be extended to 31 March 2025 and Section 10AA time limit for SEZ units to be extended. Alternatively, the time limit for units to obtain approval and commence the operation be extended to 31 March 2023 in an SEZ notified up to 31 March 2020. In addition, the applicability of MAT to SEZ should be withdrawn or reduced to 9%.

The real estate sector would really welcome the above expectations being addressed in the forthcoming Budget. This will greatly assist the sector in its recovery which, in turn, will positively impact the overall economy on its path to post-pandemic recovery.

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