By Gautam Thacker, President, NAREDCO - Progressive Neral-Karjat Unit,
How should Union Budget 2022 address the real estate sector?
Real estate sector affects 250-plus segments of other industries and it is also covered by 100+ regulatory laws. In our view, there are a number of areas that Union Budget 2022 should
address. Union Budget may be the evidence of the landmark changes be it in policy changes in the various schemes, taxation, funding and others.
What can be the core area of focus that this Budget 2022 could observe for real estate sector?
In our view, the Budget will address the housing sector and moreover the affordable segment because government has committed to delivering “housing for all” by 2022, to provide affordable housing for the rural and urban poor, and affordable rented accommodation for migrant workers.
What are the issues in affordable housing?
Government has intended to provide housing for all. Affordable housing is generally for low-income families and for the same there should be single criteria for all the applicable laws and stakeholders of the sector. You would be amazed to see that there are multiple definitions available for affordable housing which leads to creating confusion in decision making to the builders developing the affordable housing projects and which in turn leads to non-achieving the objective statement of government for affordable housing.
A notification of Department of Economic Affairs states that “Affordable Housing” is defined as a housing project using at least 50% of the Floor Area Ratio (FAR)/Floor Space Index (FSI) for dwelling units with carpet area of not more than 60 square meters whereas in GST law, 2 criteria should be satisfied to fall under the definition of affordable residential apartment, first is area based criteria (i.e. the 60 square meter in metropolitan cities or 90 square metre in cities or towns other than metropolitan cities) and second is consideration based criteria i.e. maximum cap of value of the apartment should be Rs 45 lakhs. In income tax, a builder claiming the deduction u/s 80-IAB the stamp duty value should not be exceeding the Rs 45 lakhs.
In fact, you would see that everything is not aligned especially when all these things are made for the only intention of the government i.e. affordable housing. Alignment will help builders for the right decision making which in turn will assist to complete the target in time.
Looking at Covid scenario, what can be expected in the budget?
Meeting timeline has been the biggest constraint in the Covid period and therefore you can see that for the pending litigations, even the Apex Court has extended the limitation period four times for such cases. Government also knows how the real estate sector has been badly affected due to this.
We expect that there can be an extension in the time limit u/s 80-IAB of Income Tax where a builder can claim a deduction of an amount equal to 100% of the profits and gains derived from such business provided the project is approved by the competent authority on or before 31st March, 2022 and the project is completed within a period of 5 years from the date of approval by the competent authority.
Timeline should be extended for further 2 years in both of the conditions and these should be read as the project is approved by the competent authority on or before 31st March, 2024 and the project is completed within a period of 7 years from the date of approval by the competent authority.
Another relief we may expect is the provision where the deemed rent is charged on the property remains in stock after 2 years post obtaining the completion certificate. Not only those builders who got the completion certificate just before the spread of Covid could not materialise in the commercial market, but also whose projects which are near to the completion stage are also likely to suffer the Covid side effects. Therefore the government should extend the period by 2 further years.
Real estate sector has been streamlined in GST law; what further developments can be expected?
When an affordable residential apartment is booked by a customer in the under-construction phase then he has to pay the tax at 1.5% on the 2/3rd of the gross amount charged and benefit of input tax credit is not permissible to the builder. Further, Builder has to comply with certain conditions including a scenario where has to have the inward supplies of input and input services from GST registered suppliers to the minimum extent of 80% on yearly basis in a project, failure of which invites the liability to pay the tax on reverse charge basis at 18% on the shortfall as compared to the said 80%.
It is very normal that many vendors are from unorganised/semi-organized sector (like sand etc.) and builder has to buy the products and avail the services from them only, which does not justify the 80% condition.
Our view is that condition of reverse charge should be omitted looking at the pricing of consumer category of affordable housing as the condition of paying the tax on reverse charge mechanism increases the cost.