Both directly and indirectly, the real estate sector benefits as investors have been encouraged to invest in more than one house.
If there is one sector that should be pleased as punch with Narendra Modi's sixth Budget, or Piyush Goyal's first, it is the beleaguered real estate sector. Both directly and indirectly, the sector benefits as investors have been encouraged to invest in more than one house.
The direct benefit to the real estate sector comes from the extension of tax-free benefits under section 80 IBA for companies involved in affordable housing projects till March 2020. Profits from projects started by this date will be free of tax. There should be a building boom in the affordable sector over the next 15 months.
Also, builders do not have to pay notional rent on unsold flats for two years after the year in which the construction is finished. This is up from the one year limit set earlier.
Apart from these direct benefits, the real estate sector gains from the concessions given to investors.
First, if you own two houses in two different places and both are self-occupied, you currently pay tax on the notional rent received on the second house. Now, the notional interest is gone and you can self-occupy both houses and not pay tax on either. This will encourage people to invest in second homes in towns other than their actual place of residence. It will boost demand for second homes.
Second, capital gains made on sales of houses can be rolled over if invested in a new house. From next year, gains of upto Rs 2 crore can be invested in two houses, which again is an incentive to buy more homes as investment.
Third, the tax deduction at source (TDS) threshold for rent paid has been raised from Rs 1.8 lakh to Rs 2.4 lakh. This means houses given on rent will not face any TDS from the lessee, easing compliance burdens on rental properties.
If the GST Council cuts rates on under construction property, the real estate sector, one of the worst affected by demonetisation and the Real Estate Regulation Act, will have been compensated for all its travails since 2016.