Residential buildings stand under construction. (Photographer: Wil Riera/Bloomberg)

Budget 2019: Here Are Benefits Homebuyers Can Look Forward To

Finance Minister Piyush Goyal announced incentives for the real estate sector in the interim budget to help it overcome a slowdown brought about by the rollout of goods and services tax and demonetisation.

Here are case studies to demonstrate how the measures would benefit home buyers.

Case 1: If an individual owns two houses, both occupied by family members, a tax on notional rent is applicable on one of the two self-occupied houses as per the taxpayer’s decision.

The notional rent is the either the municipal rent or fair rent value based on the neighbourhood, whichever is higher, but not greater than the standard rent fixed under the Rent Control Act. While municipal rent is decided by the local municipal body, fair value is an estimate based on the location and standard rent is fixed according to the legislation.

This would benefit the middle-class population at large, according to Niranjan Hiranandani, president of National Real Estate Development Council. “The move will benefit middle-class group which have to maintain families at two locations on account of their jobs, children’s education, care of parents etc.”

What changed: Tax on notional rent on second self-occupied house will be exempted. This means that if a family member owns a second house, he/she will be exempted from paying tax on it.

Case 2: If an individual earns long-term capital gains on the sale of houses they can reduce their tax outgo by investing gains in buying only one house property.

What changed: The long-term capital gains tax arising out of the sale of a property up to Rs 2 crore could be used to buy two properties. The caveat is an individual can only claim this extended benefit once in their lifetime.

The move is expected to boost sales in both primary and secondary markets, according to Shishir Baijal, chairman and managing director, Knight Frank India.

“Announcements in the form of tax rebates, capital gains exemption on roll-over provisions on residential property (selling a house and purchasing another) will enable retail buyers to purchase two residential properties,” said Neeraj Sharma, director, Grant Thornton Advisory.

Impetus For Real Estate Developers

Real estate developers, especially those in the affordable housing space, have reason to cheer as the benefit under Section 80-IBA of the Income Tax Act which allows them to get tax deduction of an amount equal to 100 percent of their profit, is extended for another year up to Mar. 31, 2020.

Developers with unsold inventory will be exempted from tax on notional rent for two years, starting from the end of the year in which the project is completed. Earlier, developers had this tax exemption only for a year.

“For the supply side, the government has taken into consideration the challenge of unsold inventory and has therefore increased the period of exemption for notional tax on unoccupied units from the prevalent 1 year to 2 years,” Baijal said. “This will give developers a big relief allowing them to concentrate on sales strategies… The demand for housing is strongest in the affordable segment.”