Budget Expectations for 2012-13: NAREDCO
By Accommodation Times (www.accommodationtimes.com)
By AT Bureau
National Real Estate Development Council (NAREDCO) is the apex body at National level, representing all stakeholders engaged in real estate development. Hon’ble Minister of Housing and Urban Poverty Alleviation, Govt. of India, is its Chief Patron. The Council has representation from Govt., Private and Public Sector Developers, Promoters, Housing Finance Institutions and Real Estate Agents. NAREDCO works to create and sustain an environment conducive to the growth of real estate industry, partnering Industry and Govt. alike, through advisory and consultative processes.
Housing, which is one of the three basic needs of humanity, is terribly in short supply, giving rise to slums and squatter settlements in cities and towns. Urban short fall is estimated around 28 million housing units, which is likely to further rise with the urbanization expected to double by the middle of this century. This calls for some drastic changes in Govt. policies to attract investment in the housing sector and accelerate supply. Fiscal incentives provided to the sector, in the past, has impacted supply as also demand but there is lot more still need to be done.
NAREDCO has made many recommendations in this regard to Ministry of Finance, Urban Development and Housing and Urban Poverty Alleviation, Govt. of India, for inclusion in Budget 2012 with a view to accelerate housing development in the country. Important amongst them are –
Declare Housing as Infrastructure and Bring it u/s 80IA of IT Act 1961: This will enable developers and Housing Finance Institutions to raise funds at low rate of interest from domestic and foreign markets, which, at the moment, is confined to Indian Banks and Public Equities at a very high rate of interest. This will also incentivize developers by bringing down their income tax liability. Most countries and World Bank treat housing as infrastructure.
Special Incentive to Developers to undertake construction of Smaller Houses u/s 80IB(10) of IT Act 1961: More than 90% shortage of housing is in smaller size houses (300 – 1200 sqft built up area). u/s 80IB(10) of IT Act 1961, there used to be an incentive for 100% deduction of profits derived from the construction of housing projects upto 1000 sqft built up area in Mumbai and Delhi and upto 1500 sqft built up area at other places. This was withdrawn vide Finance Act 2009. As this was a big incentive for developers to construct smaller size housing units to suit the requirements of low and medium income households, NAREDCO has suggested that it should be reintroduced and 100% deduction of profits derived from constructing housing units upto 1200 sqft built up area allowed. This will go a long way in addressing the housing requirement of LIG and MIG categories.
Increase in Deduction Limit on Account of Interest Payment on Home Loan from Rs. 1.5 lakh to Rs. 3 lakh u/s 24 of IT Act 1961: Deduction of Rs. 1.5 lakh, paid as interest on home loan, was introduced vide Finance Act 2001 and made effective from 1st April 2002. Before 2001, 100% of interest paid on home loan used to deducted. Since 2001, ten long years have passed and merely on the basis of Cost Inflation Indexation, Rs. 1.5 lakh in 2001 would be close to Rs. 3 lakh in 2012. Also, the indexed cost of Rs. 20 lakh property in 2001 would be around Rs. 40 lakh in 2012. Thus, merely on the basis of cost indexation, there is a strong case to increase the deduction limit, on account of interest payment on home loan, from Rs. 1.5 lakh to Rs. 3 lakh, the NAREDCO has argued.
Increase in Exemption Limit of Rental Income u/s 24(a) of IT Act 1961: Supply of rental housing in the market is insignificant because of low rate of return on high investment in housing property. As all can’t own houses for various reasons, 40-50 percent of total housing stock is ought to be on rental in the market, to meet the housing need of low income group, who have no capital to buy, and floating population. NAREDCO has suggested to increase the deduction limit from 30%, presently available u/s 24(a), to 50% and levy tax only on 50% of the rental income. This is necessary to incentivize people to build / buy houses for renting purposes and, thus, increase rental housing stock.
Exemption from Capital Gain if Proceed from Transfer of a House Property is utilized for Purchase of one or more Houses or Invested in Capital Gain Bond u/s 54 of IT Act 1961: As per the provisions of Section 54 of IT Act 1961, investment of Capital Gain from the sale of a house, if made to purchase one house, is exempt from Capital Gain Tax. If Capital Gain is more than the cost of the house, tax is payable on the balance. NAREDCO has suggested that where entire capital gain is invested on purchase of residential property (one or more) or invested in Capital Gain Bond, it should be exempted from Capital Gain Tax. It will be big incentive for investment in housing.
Service Tax on Residential Construction: Imposition of 10% Service Tax on residential construction, when Govt. is struggling to meet the demand supply gap of housing, specially in low income groups, is a deterrent, as it raises the cost by about 3%. NAREDCO has suggested that Service Tax on residential construction should be withdrawn.
Fund for Housing: NAREDCO has suggested creation of a dedicated affordable housing fund, in line with infrastructure fund, exclusively for developing housing of EWS & LIG. Also, it has suggested assess to pension, insurance and provident funds to meet long term investment requirement of housing sector.
Measures to Down Market Housing Finance to Poor Section of Society: NAREDCO has suggested for developing suitable mechanism based on interest subsidy, funds pooling and relaxation of mortgage requirements as also instruments like micro financing, community pooling, agricultural land mortgaging and annual installments etc, to meet the housing loan need of urban poor and rural households. It has also suggested graded scale of grant, subsidy and loan for social housing to ensure that lowest strata of poor get maximum benefit.
Bring HFCs at par to Banks in Derecognizing Interest on Bad Debts u/s 36(1)(viia): NAREDCO has suggested that HFCs and Banks should be given same treatment in allowing 10% of the value of doubtful and loss assets as deduction. HFCs are deprived of it at the moment.
