By Anuj Puri and The Global Realty team
The Budget that was being touted as a make-or-break one for the future of India, and the Government made some big announcements on the infrastructure front and also on beneficial changes to the affordable housing segment.
The Budget missed out on giving any additional income tax incentives to first-time home buyers or providing higher tax savings on housing loans and house insurance premiums. Nor did it raise house rent deduction limits. However, it did provide some direct tax relaxation to the lowest income earners, and gave some clarity on the designated beneficiaries under the Pradhan Mantri Awas Yojana. A new Credit Linked Subsidy Scheme (CLSS) for the middle-income group with a provision of INR 1,000 crore in 2017-18 was announced. Also, extension of tenure of loans under the CLSS of Pradhan Mantri Awas Yojana (PMAY) was increased to 20 years from the existing 15 years.
Moreover, one crore houses are to be built by 2019 in rural India for the homeless and those living in ‘kaccha’ houses. Allocation to PMAY has been increased from Rs. 15,000 crore to Rs. 23,000 crore in the rural areas – and affordable housing will now finally be given infrastructure status. This is very significant, because it will provide the vital budget housing segment with cheaper sources of finance including, but not restricted to, ECBs (external commercial borrowings). Also, re-financing of housing loans by NHBs (National Housing Bank) can give a leg up to the sector.
Under the latest provisions, developers to get one year’s time to pay tax on notional rental income on completed unsold residential inventory. The time limit for capital gains to be considered as a long term gain has been reduced to 2 years from the earlier 3 years. More supply will enter the housing market now.
The applicable exemptions for affordable housing will now be recognized on the basis of carpet area of 30 sq. m. and 60 sq. m. instead of on the basis of saleable area. The 30 sq. m. limit will only be applicable within the corporation limits of the 4 major metros. For fringe areas of these metros and all other cities, it will be 60 sq. m. on carpet area. This will effectively serve to increase the increase the number of projects falling under this segment.
Promoters of affordable housing projects will benefit from the following announcements:
· Instead of the earlier timeline of completing their projects within 3 years, they now have a cushion of two additional years.
· JDs liability to pay capital gains tax will be in a year after the project is constructed. This will be beneficial for land owners and land prices can ease; this benefit can be passed on to home buyers.
On the infrastructure front, a total investment of INR 3,96,135 cr was announced in the Budget 2017. Budget allocation for highways will go up to INR 64,000 crore in FY18 from the earlier INR 57,676 crore. Allocation for national highways has been stepped up to INR 64,000 cr from INR 57,676 cr. The rural roads’ construction work will be accelerated to 133 km of roads per day in 2016-17, as against 73km/day during 2011-14. A new metro rail policy will be announced.
On the FDI front, the FIPB (Foreign Investment Promotion Board) is set to be abolished and a new roadmap is to be announced in the next few months. This will give the real estate sector access to significantly more funding than it has today. A new FDI policy is under consideration, which promises to liberalize the FDI regime further.
Today, the Union Minister for Finance and Corporate Affairs, Arun Jaitley while presenting the General Budget 2017-18 in Parliament today said that affordable housing will now be given infrastructure status, which will enable these projects to avail the associated benefits,”
“The National Housing Bank (NHB) will refinance individual housing loans of about Rs. 20,000 crore in 2017-18. Thanks to the surplus liquidity created by demonetisation, the Banks have already started reducing their lending rates, including those for housing,” said Jaitley.
The Finance Minister Jaitley in his Budget Speech said that in addition, interest subvention for housing loans has also been announced by the Prime Minister Narendra Modi.