Tax incentives hold key to revival

Vinod Behl

At a time when real estate companies are reeling under heavy debt and are facing severe cash flow issues due to slump in sales,  tax incentives, besides capital infusion may well play a decisive role in boosting sales. This measure can lead to revival of the realty sector. It is for this reason that industry bodies like NAREDCO are pushing for tax reforms in the upcoming budget.

Revise ceiling under Section 80 C

There is a case for revising the ceiling of Rs 1.5 lakh under Section 80C to Rs 2.5 lakh, with exclusively reserving Rs 1 lakh out of it for payment of principal borrowed for the purchase of a residential property. A separate limit for payment towards purchase of a house or repayment of principal on housing loan was available under Section 88. Under Section 24(b), deduction on account of interest payment on housing loans is permissible to owners of rented houses to the full extent. 

In the owner-occupied houses, the limit is set at Rs 2 lakh. Moreover, the deduction is available after acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed. 

It is now suggested that the deduction on account of interest payment available under Section 24 should be made applicable from the year in which capital was borrowed as for principal under Section 80C and should be to the extent of full interest paid, at least in respect of one house. 

A case has been put up to at least raise the limit of Rs 2 lakh to Rs 3 lakh for owner- occupied houses. Also, five-year period for acquisition/completion from the year of borrowing should be dispensed with. 

This will provide much- needed impetus to housing sector facing severe shortage  of houses due to cash- flow problems, thereby providing relief to consumers.

Resolve the TDS tangle

Section 194-1A concerning payment on transfer of certain immovable property other than agricultural land, is considered to be a deterrent in promoting housing for all, especially hitting middle income segment. It makes transferee liable to deduct TDS at the rate of one per cent of the value of consideration paid to transferer and deposit in government treasury where value of consideration exceeds Rs 50 lakh. 

Since Rs 50 lakh is insufficient amount to meet the cost of an average house in metros and tier 1 cities, it is proposed that Section 194-1A be done away with, at least for the primary market. 

There is a demand to review Section 45(5A), dealing with capital gains in case of joint development. This section proposes that capital gains will be changeable to tax in the previous year when certificate of completion is issued for the whole or  part of the project. It does not cover land owner holding the properties in the name of company, firm, LLP etc. There is thus a need to  extend the provision to all types of entities. Under Section 43CA (special provision for full value of consideration for transfer of assets other than capital assets in certain cases). 

The actual sale value should only be the basis for commuting tax on profit and gain from land and building assets and not the notional income. Keeping this in mind, Section 43CA should be dropped altogether or at least primary market transactions be kept out of its review.

liability on unsold stock will be unfair

The proposed tax on notional income for house property held as stock in trade from April 2018 has also faced opposition. It has been argued that taxing notional rent after one year from the end of the financial year in which completion certificate is received, will lead to financial implications for real estate companies, particularly as developers are sitting over huge unsold inventory due to tepid sales. Therefore, it will be prudent to exempt real estate companies from this tax or credit should be given for tax paid on notional income at the time of actual sale of property. With regard to Section 54, dealing with capital gain from the sale of house property, it has been suggested that the restriction imposed on investment of sale proceeds on acquiring one house should be removed and scope be broadened to exempt capital gain tax if the sale proceed is invested in housing activities to create one or more housing stock.