Budget 2017 - Impact on Real Estate Sector

Amidst the continuous debate regarding budget's appropriateness in the current scheme of things, there's been a ray of hope for the real estate sector. This also comes as another motivator after the change in FDI norms in the real estate sector. Following is a summary of changes brought about in the Budget 2017 with respect to the real estate sector:

1) Amendment in Section 80-IBA of The Income Tax Act 1961

Last year, the Finance Minister had proposed Income Linked Deduction for promoters with respect to income from Affordable Housing Projects. Following are the new changes :

• Instead of built up area of 30 & 60 sq. mtr , the carpet area of 30 & 60 sq mtr will be counted. (30 for Delhi, Chennai, Kolkata, Mumba - 60 for other cities)
• There was a restriction of 25 Km (aerial distance) within the municipal limits of the above cities i.e the conditions mentioned in the above point applied within the distance of 25Km measured aerially from the municipal limits. This restriction has been done away with. Hence the restriction of 30 applies only within the municipal limits of above cities. While for rest of the India it shall be 60.
• Period of completion proposed to be extended from 3 years to 5 years.

2) Amendment in Section 23 of the IT Act 1961 for builders who treat construction buildings as SIT (Stock in Trade)

• Unoccupied houses, after getting completion certificates, were subject to notional rental income tax under the head House Property. The finance minister has proposed to apply this rule only after completion of 1 year from the end of the year in which they get their completion certificate. This shall give the builders some breathing space to liquidate their inventory and avoid tax burden\\

3) Reduction in Capital Gains Tax Liability

• (Section 2(42A)) : The holding period for considering immovable property as a long term asset proposed to be reduced from 3 years to 2 years.
• (Section 48) : The base year of indexation for calculating capital gains has been proposed to be changed from 1981 to 2001 for all class of assets including immovable property. This shall ease out a lot of capital gain burden and also encourage mobility of assets.
• Proposal to increase the range of investments where you can invest the capital gains without paying income tax

4) Amendment in Section 45:

• Under the Joint Development Agreements, currently the transfer of assets becomes chargeable to capital gains tax in the year of transfer. It is proposed to charge income to tax in the previous year in which certificate of completion is received from the competent authority for whole or part of the project.

5) Amendment in Section 10:

• Incomes of individuals and HUF arising from transfer of land due to re organization of the state of Andhra Pradesh as on 02.06.2014 shall not be chargeable to tax (Provided the transfer has been made according to the land pooling scheme officiated by the Government)

Whatever said and done, these measures do bring about a positive sentiment in the already very volatile real estate sector. As professionals mediating financing of projects this comes as a great deal of confidence to encourage promoters and investors, both.