The budget 2017-18 is going to be unique in many aspects. For the very first time the Railway Budget will be merged with the General Union Budget. Also the Union Budget will be presented one month in advance on 1st February, 2017.
The Indian economy was growing at 7.6%, when the introduction of demonetizationled to a decrease in the pace of the economy. Liquidity issues had serious impacts on businesses especially sectors like Automobiles and Real Estate where cash transactions were required.
Due to the reduced demand, we expect the budget to increase growth by announcing some revolutionary changes.
The real estate industry was hit hard by decision of demonetization but the companies are hopeful of a populous budget as it has been preponed due to the upcoming elections in 5 states. The industry has high expectations from the upcoming budget 2017. Stakeholders are demanding that central government gives relaxation in income tax rate, provide clarification on GST Bill, raise House Rent Allowance (HRA) deduction and announce policies to standardize construction materials in order to uplift the real estate industry.
Here are some issues that the budget is expected to clarify :
1. Clarity under Pradhan Mantri Awas Yojana
Under (PMAY), the government announced that the interest rate on loans up to Rs. 12 lakh will be 3% and on loans up to Rs.9 lakh will be 4 %. The Budget should give more clarity on the actual definition of beneficiaries who can avail of these benefits.
2. Clarity on Goods and Services Tax
While (GST) tax structure has been announced, the real estate industry is waiting to see which tax rate is applied to the real estate and construction industry. Clarification would also be needed on the abatement scheme, and whether credit for input tax would be allowed if the composition scheme has been availed by developers.
3. Income tax incentives for first-time home buyers
The Budget should specify whether a first time home buyer can get additional income tax incentives for at least five years or not. Any efforts in this direction would help the government move closer to its objective of delivering ‘Housing for All by 2022’. Also such a move could lead to many fence-sitters into moving out from their rented apartments to owned homes.
4. Higher tax saving on housing loan and house insurance premiums
The government should take initiatives to increase the limit of tax deduction for housing loans, especially for buyers in metropolitan cities. The current limit is Rs. 2 lakh which is very less for cities like Mumbai where ticket sizes cross Rs. 1 crore. Also, tax concessions on house insurance premiums could be introduced to encourage end-users to insure their homes. Similarly, the tax exemption limit should be increased by about Rs. 1 lakh.
5. Ease in tax structure
As everyone is aware that demonetization had a severe impact on sales, as potential buyers tried to postpone their purchase decision, waiting for an imaginary fall in property prices. The budget is expected to present some measures which will increase money supply leading to increase in home sales. Specifically, there could be some amount of tax cut rates for middle-class people and offering higher degree of rebate. Making changes in the income tax slabs will allow higher savings and improve the purchasing power of public, thus allowing people to look at real estate as an appealing avenue for investment and housing purpose.
These are some of the issues expected from the much awaited budget 2017 which should be tackled. The real estate sector contributes to over 15% of India’s GDP. Hopefully, the industry gets a jump start and flourishes further.