There’s also a recommendation to enhance affordability housing limits, bringing them to Rs 75 lakh in non-metro cities and Rs 1.50 crore in metros. The adjustment in apartment sizes is proposed to further align with the evolving needs of homebuyers.

b. Standardization of Registration Charges and Continued Incentives:

The plea for the standardization of registration charges under GST, coupled with an input credit option for residential units, is crucial.

Additionally, the continuity of affordable housing interest subsidies, increased Floor SpaceIndex (FSI), and tax exemptions are emphasized to stimulate demand.

c. Second Home Purchases and Low-Interest Rates:

The industry calls for the allowance of second home purchases and considers interest costs as set offs for the salaried class. Ensuring and maintaining low-interest rates for housing loans over the next 4-5 years is crucial.

A significant proposal is to allow banks to lend up to 90% of the house cost, providing financial flexibility.

2. Supply Side:

a. Single Window Clearance Mechanism and Industry Status:

A long-standing demand for a single-window clearance mechanism is reiterated. Moreover, the industry’s plea for industry status aims to provide access to cheaper credit facilities from financial institutions.

b. Standardized Project Approvals and Land Financing:

Recognizing the importance of timely project delivery, there is a call for standardizing project approvals. A singular mechanism or single-window clearance is sought to reduce overall approval timelines. Simultaneously, banks should be empowered to lend up to 50%of the land value for the purchase of land dedicated to residential projects.

3. Taxation:

a. Revision and Simplification of GST, Increased Deductible Limits:

Taxation reforms are deemed essential, starting with the revision and simplification of GST Input Credit and GST on joint developments. An exemption for GST on completed inventory in joint development transactions is also sought.

To address challenges, the increase in the personal income tax-deductible limit to at least Rs. 2 lakh and an extension of the tax holiday scheme are crucial.

b. Equitable HRA Allocation:

The current HRA classification designates employees residing in recognized metro cities like Delhi, Mumbai, Kolkata, and Chennai to receive an HRA of 50% of their basic salary. However, those in non-metro cities receive a reduced allowance of 40% of their basic salary. This classification overlooks major cities such as Bangalore and Hyderabad, where rental costs are exceptionally high. Therefore, we anticipate that the forthcoming budget will address this inconsistency by re-evaluating the city classification and resolving the disparity in HRA allowances.

c. TDS Deduction Rates and Tax Exemption for Investments:

Reduced TDS deduction rates on co-working spaces, considering their service-oriented nature, are proposed.

A call for tax exemption for investments in Real Estate Investment Trusts (REITs), starting with Rs 50,000, is put forward.

d. Proposed Extension of Under-construction Property Timelines:

Section 54 of the Income Tax Act allows long-term capital gains from selling a house to be used for purchasing or building a new property. However, when seeking exemption through an under-construction property, the claim is valid only if the construction concludes within five years of selling the previous house. To address this, a proposal suggests extending the completion timeline for under-construction properties. This adjustment aims to ease challenges for homebuyers in under-construction projects while optimizing tax benefits associated with property transactions.

e. Tax-Neutral Business Consolidation and Capital Gains:

The industry recommends allowing tax-neutral business consolidation through mergers or amalgamations to revive stalled housing projects, offering relief to troubled homebuyers. Proposals to tax long-term capital gains on capital assets at 10% with a reduced holding period of 12 months are also on the agenda.

f. Relief for NRIs in Property Transactions:

Government intervention is sought to reduce TDS on property transactions for NRIs.

4. Cashflow Management:

a. Priority Sector Recognition and Less Stringent Financing Rules:

To ensure the timely completion of projects, residential development is proposed to be categorized as a priority sector.

Rules for lending, rating, and asset classification should align with the business cycle, steering away from the rigidity of traditional timelines. Advocacy for less stringent financing rules and rigorous escrow regulations is complemented by the recommendation for a One SPV-One Escrow-One Project Model.

The real estate industry’s budget expectations for 2024 present a comprehensive roadmap to navigate challenges. By addressing demand creation, streamlining the supply side, managing cash flows, and implementing crucial taxation reforms, the industry envisions a future marked by recovery, growth, and increased affordability for homebuyers.

Government’s response to these expectations will undoubtedly shape the trajectory of India’s real estate sector.

This article was originally published in ET Now on 30 January 2024 Written by: Ashoo Gupta, Partner. Click here for original article

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