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RM Reports

Budget 2019 Highlights & Review: Residential Real Estate Sector – RealtyMyths

by Akhilesh K Prasad

The residential real estate sector has taken a huge hit in the last two years. Apart from a prevalent slowdown in the market, this was attributed to demonetization and the implementation of Real Estate Regulations and Development Act (RERA) and Goods and Services Tax (GST) which disrupted the market due to initial uncertainties. The residential real estate sector was, therefore, in need of a boost. Budget 2019-20 has aimed to provide some relief in that direction, especially for affordable housing in line with the government’s initiative of “Housing for All.”

The salient features of the Union Budget relevant to the residential real estate sector are as follows:

Income tax exemption

The proposed exemption on Income tax will save over Rs. 28,000 annually for a person with an income of Rs. 6 lakh. That amount, multiplied by the number of earning members in the family could make up a significant saving. Given that loans for affordable housing are generally around Rs. 10 lakh with an EMI of around Rs. 10,000 per month, the saving on account of income tax exemption is likely to prompt more people to purchase affordable houses.

Extension of benefits u/s 80-IBA

The benefits under section 80-IBA of the Income Tax Act, aimed at making more homes under affordable housing has been extended for another year. This essentially means that all housing projects approved until 31st March 2020 will fall within its purview.

Exemption from tax on Notional Rent

Currently, the tax is payable on the notional rent in case a person has a second self-occupied house. Considering the difficulty of the middle class having to maintain families in two different locations on account of jobs, children’s education etc, the Budget has a proposal to exempt income tax on the notional rent of the second self-occupied house. It is likely that investors, who used to shy away from investing in a second home on account of the tax charged on notional rent, will now be interested in making such an investment.

Rollover benefits of capital gains extended to two properties

The Budget proposes to extend the benefit of rollover of capital gains under section 54 of the Income Tax Act from investment in one residential house to two. Earlier, a homeowner could save tax on capital gains on property sold by reinvesting the money in another property. The law, however, did not allow him to invest the amount in more than one property. The benefit, however, will be applicable only to tax-payers having capital gains up to Rs. 2 crores and only once in a lifetime.

In conclusion, Budget 2019-20 has provided a good mix of direct and indirect incentives for the residential real estate sector, especially relevant to affordable housing. Real estate developers and consultants have hailed the Budget and opined that it addresses both the demand and supply side of the sector.

An MBA by qualification, Akhilesh has dabbled into various businesses. He is a keen    debater, data miner and analytically inclined. His blogs tend to present a fresh perspective on any given matter

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