Budget 2016: Changes for Real Estate Sector

1. Additional Tax:Krishi Kalyan Cess, at the rate of 0.5% of value of taxable service imposed, with effect from 01.06.2016. Thus the rate of Service Tax on real estate services shall be increased by 0.5% with effect from 01.06.2016.

2. Rationalization of abatement:At present, two rates of abatement have been prescribed for services of construction of complex, building, civil structure, or a part thereof,- (a) 75% of the amount charged in case of a residential unit having carpet area of less than 2000 square feet and costing less than Rs 1 crore, and (b) 70% of the amount charged in case of other than (a) above, both subject to fulfilment of certain conditions prescribed therein. A uniform abatement at the rate of 70% is now being prescribed for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions. The change shall be effective from 01.03.2016.

Service Tax exemption to affordable Housing:

3. Services by way of construction, erection etc. of a civil structure or any other original works pertaining to the “In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation” component of Housing for All (HFA) (Urban) Mission / Pradhan Mantri Awas Yojana (PMAY), except in respect of such dwelling units of the projects which are not constructed for existing slum dwellers, is being exempted from service tax.

4. Services by way of construction, erection etc., of a civil structure or any other original works pertaining to the “Beneficiary-led individual house construction / enhancement” component of Housing for All (HFA) (Urban) Mission/ Pradhan Mantri Awas Yojana (PMAY) is being exempted from service tax.

5. Services by way of construction, erection, etc., of original works pertaining to low cost houses up to a carpet area of 60 sq.m per house in a housing project approved by the competent authority under the “Affordable housing in partnership” component of PMAY or any housing scheme of a State Government are being exempted from service tax.

Ready Mix Concrete exempted from Central Excise Duty:

6. Ready Mix Concrete [3824 50 10] manufactured at the site of construction for use in construction work at such site is being fully exempted from excise duty.

Income Tax benefit to undertakings developing affordable housing projects:

7. 100% deduction for profits to an undertaking in housing project for flats upto 30 sq. metres in four metro cities and 60 sq. metres in other cities, approved during June 2016 to March 2019 and completed in three years. MAT to apply.

REITS etc. exempted from DDT

8. Distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax, in respect of dividend distributed after the specified date.

Additional benefits to home buyers

9. Deduction for additional interest of Rs. 50,000 per annum for loans up to Rs. 35 lakh sanctioned in 2016-17 for first time home buyers, where house cost does not exceed Rs. 50 lakh.

 10. Deduction of rent paid increased to Rs. 60000 from present 24000.

The Government has taken multi-pronged step to held real estate sector. It is provided Service Tax exemption to affordable housing schemes. It has rationalised abatement structure. Further additional assistance has been given to the first time home buyers. Further Income Tax benefit has been given to the entities engaged in constructing affordable housing. Real estate investment trusts and other investment vehicles have been provided with exemption from dividend distribution tax.

The Minister missed opportunity to grant industry status to real estate.

Rajesh Kumar, Advocate