The Union Budget 2020 by Hon. Finance Minister Nirmala Sitharaman is hailed as the longest budget ever to be presented in the Parliament to date. However, it failed to become a harbinger to the Real Estate sector that everyone hoped it to be.
Real Estate contributes approximately over 32% of India's GDP, it is also one among the largest employer segment of the country providing direct and indirect employment to the millions of citizens across the nation. And yet sector was pushed back amidst the new tax regime and the economic uncertainty and was only given a few reliefs on the affordable housing sector and the circle rate.
What did the Real Estate sector want?
The AIF regime of Rs 25,000 crore by the government is one of the utmost necessities required by the real estate segment. The delayed funds would only deter the homebuyer's confidence in the sector and would cause more projects to get stalled due to the financial crisis. The completion of the countless stalled projects across the nation should be in all ways the first step to revive the sector.
80C & 80 EE deductions are currently listed as the two of the major tax reliefs under the home loan tax benefits. Under 80C the loan borrowers can avail up to Rs 2 Lakh deduction on home loan principal repayments as well and the public expects the government to increase it up to 2.5 Lakhs.
The 80 EE tax deduction under the Income Tax Act of 61 caters to first time home buyers to claim Rs 50,000 beyond the section 80C. This is currently available for houses with a value of Rs 50 Lakhs. The sector demands an increase of the bracket to be increased to Rs 75 Lakhs to Rs 1 Crore. These changes will certainly boost the demand for mid-segment customer range to opt-out for affordable housing categories.
What did the sector get?
The first and foremost factor that stood out and has made an overall impact on the Union Budget 2020 is the new tax regime. With the advent of the new Indian budget, the citizens of the nation can choose from two different tax regimes.
The first is the previously held regime that allowed to avail of income tax benefits from home loan repayments as well as other expenses. Whereas the new tax regime of India which is more of a personal tax mode that takes away the existing tax exemptions.
Nirmala Sitharaman has also hinted that the government shall soon dissolve away the tax exemptions and benefits altogether to simplify the process and allow a direct taxation scheme that will reduce the toll on the taxpayers.
This new alternative tax regime of the Union Budget 2020 has lower rates compared to the previous one and claims to have provided a simpler and easier to digest format for the public. It is also expected to raise the financial liquid capacity ( the rate of disposable income) of the taxpayer.
However, by taking away the exemptions from expenses covered under section 80C for PF, Home Loan Repayment, Insurance premiums, etc will do away the "save more, invest more" approach that has been a base for the financial stability of our nation's denizens.
A Comparision of India's Old Tax Regime '19-20 & New Tax Regime '20-21
|Previous Tax Slab||Previous Tax Percentages||New Tax Slabs||New Tax Percentages|
Upto 2.5 Lakh
|NIL||Up to Rs 2.5 L||NIL|
2.5 Lakh to 3 Lakh
|5%||Rs 2.5 L to 5 L||5 %|
3 Lakh to 5 Lakh
|5%||Rs 5 to 7.5 L||10%|
5 Lakh to 10 Lakh
|20%||Rs 7.5 L to 10 L||15%|
Above 10 Lakh
|30%||Rs 10 to 12.5 L||20%|
|Rs 12.5 to 15 L||25%|
|Rs 15 L +||30%|
Though there are apparent reliefs between the 2.5 Lakh to 10 Lakh bracket by including the 7.5 Lakh income tax slab, the personal taxation regime will encourage more expenditure. Though there is an unspoken notion that the increased liquidity of the citizen under the new plan might increase the taxpayer's interest to spend or invest in asset classes such as Real Estate.
Even though the financial liquidity might increase the chances of the person's involvement within the higher economic spheres, the benefits of the new tax bracket remains inadequate to invest in the sector without the aid of home loans! Undoing the benefits and exemptions will deter the individual from availing home loans.
The major relief for the real estate in this Union budget 2020 was focused on affordable housing in India scheme under the Housing for all 2020. However, the ones who profited most from this real estate budget are the developers associated with the Affordable housing scheme.
The builders are allotted an extended tax holiday till the next year ie March 2021.
The second relief was for the home buyers. They were allotted an additional deduction of Rs 1.50 lakh being extended by a year as well.
However, this cannot salvage the entire Real Estate sector only those who are associated with the Affordable Housing Segment.
Check the List of Best Affordable Housing Projects in Bangalore in 2020
The Increase of the Circle Rate
This real estate budget has also seen a rise in the Real Estate Circle rate from the previous 5% to 10 %. For the uninitiated, a circle rate is the government-approved minimum rate at which a property or plot can be sold. This rate will be lower than that of the actual market price.
Thus on taxing Capital Gain Income and profits from the real estate transaction, the tax will be accounted for based on the difference as an income. By increasing the circle rate the government has brought relief to this sector.
Though these were the direct discourses on Real Estate, certain other elements of the real estate budget 2020 might become a ray of sunshine.
Commercial Real Estate Sector and Infrastructural Developments
The Infrastructural sector has received a huge boost in the Union Budget 2020. Over Rs, 8000 crores have been allocated for the development of Roads and Highways. 2000 km of coastal and strategic highways are proposed to be developed in this coming term, including the completion of the Delhi- Mumbai Expressway by 2023. There was also another significant proposal of a Chennai- Bangalore expressway.
This serves as a double-edged sword for the real estate sector, as the improved connectivity will certainly boost the residential and commercial segments of the sector however the construction phase of these roadways and nexuses shall take its toll on the coming years.
Rs 2500 crore has been allocated to the tourism sector to bolster the heritage sites and museums across the major cities of the nation such as Kolkata, Ranchi, etc. This will indirectly help out the commercial real estate especially the rental industry.
In the union budget Nirmala Sitharaman, the Hon. Finance minister has failed to bring any relief or benefit of substance to the sector. After contemplating these new tenets of the Union budget 2020, it becomes clear that unless the government intervenes in a more positive angle, it will be rather hard for the Real Estate sector to follow up whatever momentum it had gained in 2019 in the year 2020.