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Indian Real Estate News
Builders seek tax exemption for affordable housing
Source: Jan 29, 2012
The real estate industry wants tax exemption for affordable housing in the 2012-13 Budget. It is also demanding infrastructure status for the housing sector, promotion of rental housing and raising of the home loan tax bar.

The previous year's Budget did not propose any significant step for the housing sector. But this time, the National Real Estate Development Council (Naredco), an association for the industry, is pinning its hopes on infrastructure status for housing. Confederation of Real Estate Developers' Associations of India (Credai), another industry lobby group, is pitching for affordable housing to become tax free.

"Nearly 36 per cent of saleable value goes in taxes, ranging from sales tax, value added tax, excise, stamp duty etc. If at Rs 3,000 per sq ft, Rs 1,000 goes as taxes, how can you expect affordable housing," asked Lalit Jain, president, Credai.

Without the tax element, the rate can come down by one-third, an industry representative pointed out. If implemented, the housing requirement of 27 million units can be achieved, which will ensure contribution of seven-eight per cent to the gross domestic product (GDP) growth, according to Jain.

R R Singh, director general, Naredco, said World Bank considers housing under the infrastructure category, and so should the Indian government.
The industry also wants the home loan tax bar to be doubled to Rs 300,000, from Rs 150,000 now. "We base this on the grounds that cost inflation index has doubled, the house prices have gone up by 50 per cent on an average since 2002," he argued.

Royal Institution of Chartered Surveyors (RICS) in its submission to the ministry of finance has recommended a subvention in interest rates for existing home loans in addition to new housing loans.

On affordable housing, RICS has recommended setting up of a dedicated affordable housing fund, similar to infrastructure funds with an initial corpus of Rs 5,000 - 10,000 crore, with the government contributing partial funding through public issuance of bonds and the rest raised through retail investments in lieu of tax benefits.

"These funds should then be made available to developers/NGOs/private intermediates at low interest rates for construction of EWS/LIG housing," said Sachin Sandhir, MD, RICS, South Asia.

Another major demand from the real estate industry is for promotion of rental housing. "Every one cannot buy a house. Low rental income discourages developers to develop rental housing," said Singh.

RICS has also suggested lowering the tax rate on rental income from 30 to 20 per cent, along with taxing only 50 per cent of the rental income as compared to the current 70 per cent. Also, income tax exception from rental income (under Section 24) should be increased from the current 30 per cent to 50 per cent.

"The low yields on rental housing remain a bottleneck for promoting a healthy rental market," said Sandhir.
Narecdco also wants exemption of capital gains tax to be increased to buying two houses from the present one. "Often nuclear families sell ancestral property to buy two houses. This makes a case for capital gains tax exemption," according to Singh.
RICS has also suggested that first time home buyers should be incentivised with tax credits up to 10 per cent of the value of a residential unit, where the credit can be reclaimed over a period of three financial assessment years.

Credai, which has sought a meeting with finance minister Pranab Mukherjee, is seeking voluntary disclosure schemes, to wipe out black money from the system, and boost liquidity. "High taxes to convert black money into white and stringent punishment such as life imprisonment for those found with black money will increase liquidity in the real estate market," said Jain.

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