Realtors claim input tax credit under GST to boost housing segment

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Union Budget 2022-23: One of the most important demands and one that has been pending for some time is “industry” status for the real estate sector

Indian Union Budget 2022: Reduction of interest on home loans could give buyers a boost. Reuters

The real estate sector has been expecting a lot from budgets for the past 3-4 years. One of the most important demands and one that has been pending for some time is “industry” status for the sector. An announcement like this would, of course, be beneficial to everyone involved and involved in the industry, for a variety of reasons.

Therefore, like every year, this year too, almost all stakeholders including developers, home buyers, REITs, investment funds, corporate occupiers are eagerly awaiting the Minister’s 2022 budget announcements. of Finance Nirmala Sitharaman, hoping for positive changes/amendments that can impact the sector. in a very necessary and positive way.

Here are some of the top requests from the real estate community:

Amendment of the law on the SEZ

A possible revision of the 2005 law is much needed after the government passed the sunset clause and said that only units that started production on or before June 30, 2020 would benefit from a progressive exemption from the tax on income for 15 years. With the establishment of a sunset clause, the future development potential of the SEZ is under the scanner. For obvious reasons, the promoters of the SEZ, as well as the occupants, are vehemently demanding a change in some of the very strict clauses of the law, such as the impossibility of selling goods on the internal market, the acceptance of payments INR, replacing the positive net foreign exchange (NFE) clause with a new criterion.

Tax incentives linked to housing credit

A demand for an increase in the tax deduction limit on interest paid for home loans from the current Rs 2 lakh per annum (under Section 24B) is a long-awaited wish of homebuyers ahead of every budget. There are several ways to provide this relief, including increasing this limit to at least Rs 3 lakh per annum (under the same section), providing a separate tax deduction (apart from 80C) for repayments of principal, or leaving the home buyer will claim a tax refund on the full amount of interest paid. Any or all of these would reduce the cost of housing finance for homebuyers, thereby boosting housing demand, especially with the already attractive interest rates on home loans offered today. today.

Input tax credit for developers

The current rate of GST applicable to residential units under construction is 5%, and the GST on cement and steel are 28% and 18% respectively. Since developers are not allowed to claim an input tax credit (ITC) for these tax outflows, construction costs will continue to rise, with prices for these commodities only expected to rise. This application of tax incentives has also been long overdue over the years and the developer community hopes that it will be addressed in this year’s budget. This is perhaps one of the major reforms considering the high contribution of the housing segment to the overall size of the real estate market in India.

Reduction of the holding period of SCPIs for long-term capital gains

Currently, investments in REIT units only become long when the investment is held for a minimum of 3 years versus 12 months for an investment in listed securities. In order to ensure a level playing field and thereby increase retail participation in REITs, the government should consider immediately reducing this REIT holding period to 1 year.

In the event that the 2022 budget can meet some or all of these expectations from the various players in the sector, the real estate sector can regain the much-needed confidence and obtain the growth momentum that has largely been lacking over the past 12 to 24 months.

The author is Partner and Head – Real Estate, Building & Construction, KPMG India. Lives are personal.

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