Mon, 15 Jul, 2019

Union Budget eases pressure on home-owners and builders

Union Budget has a number of provisions, which are going to make life significantly easier for home-owners and also builders by reducing the tax burden. Experts hope that these provisions will help the real-estate sector in reviving after it has suffered a slowdown for many years

11th February 2019, 02:56 Hrs

Karan Sehgal  


Interim Finance Minister, Piyush Goyal, announced a number of provisions in his Union Budget, which will make it easier for people to invest in real-estate without worrying too much about tax burden.  

Thanks to the budget, there will be no tax on long-term-capital-gains (LTCG) if people reinvest profit from sale of a residential property in two residential properties provided a tax-payer does not have capital gains of more than Rs 2 crore. This new announcement is effective from FY 2019-20.  

As per existing rules, people are allowed to invest gains from the sale of a residential property in only one residential property and not two properties. This limits their options because they may like to invest in more than one property but the rules are such that they can’t invest in more than one property unless they want to pay tax.  

Chinmay Borkar, director, Akar Realty, said, “The announcement pertaining to LTCG is definitely going to help buyers. There are lot of people in Goa, who have ancestral houses. As per existing rules, after selling an ancestral house, they can invest only in one property to save tax on LTCG. Now with the new announcement, they will be able to invest in two properties and yet save tax on LTCG.”  

Borkar gave an example, as he said, “Suppose a person has an ancestral house worth Rs 1 crore. He wants to sell the house and is keen to only buy flat. But, flat’s cost is Rs 50 lakhs. In earlier scheme of things, if he buys two flats for Rs 50 lakhs each, he will be able to save tax on LTCG only on one flat and not on the other flat. But, now, you don’t have to pay LTCG on buying two properties. So, in such a case, this person can buy two flats for Rs 50 lakhs each and save tax on LTCG.”  

A number of financial experts say that people should have real-estate in their investment portfolio. However, the existing rules are such that a lot of people were not able to invest in real-estate even if they wanted. The new rules have clearly given them more flexibility.   

In the existing scheme of things, there is an income tax on notional rent of second self-occupied house. Goyal has removed this tax in his latest budget. Now, people will not have to pay tax on the second self-occupied house.   

Sandip Bhandare, president, Goa Chamber of Commerce and Industry (GCCI), said, “The announcement in the budget as per which if you have two houses, the notional rent from other house will be tax free, will really help a lot of people in Goa.”  

Bhandare continued, “Suppose you are from Margao (and have a house in Margao) but you have got a job in Panaji. So, you buy a flat in Panaji as well. Earlier, you would pay tax on notional rent of one of the two properties. Now that this tax is done away with, people 

will benefit.”  

Just as the concept of notional rent troubled home-owners, it was a major cause of concern for the builders as well. Under the existing set of rules, the law provides for a tax on notional rent on unsold inventories of a builder after one year from the end of the year in which a real-estate project is completed.  

In other words, the current rules provide for exemption from tax on notional rent for builders for only one year from the end of the year of completion of real-estate project. Goyal has extended this one year term for tax-exemption to two years for builders.  

K.K. Sekhar, a builder, said, “In fact, it was only sometime back that the government had brought in the concept of income tax on notional rent for unsold inventories of builders. I don’t think it is fair to pay tax on notional rent because we really don’t earn it. Moreover, it is very tough to sell all the inventories. So, a builder will always have some inventories, which were attracting income tax earlier.”  

The concept of tax on notional rent was getting opposition from several sections of people. This is because it was just an assumed income. Moreover, due to slowdown in real-estate sector, it was not all that easy to rent out a residential property either.  

Sekhar also applauded the budget announcement pertaining to LTCG, as he said, “The announcement about LTCG will also help people. This is because people like investing in real-estate. Now that they know that they can invest in two properties and not just one from the sale proceeds of real-estate, they will feel more confident.”  

Builders also said that the government has realized that the real-estate sector has gone through a slowdown in the last 4-5 years. Due to which, builders are facing issues relating to unsold inventories. To deal with it, Goyal has announced provisions like extension of exemption from one year to two years from income tax on notional rent of unsold inventories of builders.  

Moreover, Goyal also announced that GST-Empowered Committee may reduce tax for real-estate sector. If that happens, it will be really good for builders, who have battled with slowdown for many years now.   

Dr Jagannath (Desh) Prabhudessai, president of the Goa unit of CREDAI, said that the budget announcements will help the real-estate sector. He said, “We will have to wait and see exactly how much is the positive impact because these announcements are applicable from FY 2019-20.”  


FM’s budget boost for real-estate sector
There will be no tax on LTCG if people reinvest profit from sale of a residential property in two residential properties provided a tax-payer does not have capital gains of more than Rs 2 crore.  
In the existing scheme of things, there is an income tax on notional rent of second self-occupied house. Goyal has removed this tax in his latest budget. Now, people will not have to pay tax on the second self-occupied house.   
Goyal has announced provisions like extension of exemption from one year to two years from income tax on notional rent of unsold inventories of builders.  
Goyal also announced that GST-Empowered Committee may reduce tax for real-estate sector. If that happens, it will be really good for  builders, who have battled with slowdown for many years now.  
The budget announcements will be effective from FY 2019-20. It is expected that the slowdown in real-estate sector may ease in the coming financial year. 

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