Every year we look to the budget to see how it will impact our lives and which segment will it favour. Real estate always makes its presence felt in a budget speech. While last year, there was mostly indirect impact on the sector, the interim budget 2019 announced several measures that would directly impact demand and benefit the homebuyer. It’s a well-timed move as the sector is recovering from a period of sluggish growth, and rising demand would definitely aid recovery faster. As such the interim budget has been welcomed by all stakeholder in real estate – homebuyers, builders, developers, financier, and even existing homeowners. Let’s take a look at some of the benefits it brings to a homebuyer.
- Larger spending capability with additional tax savings
The increased income tax exemption limits will help boost purchasing power by delivering considerable savings in the hands of the taxpayer. These additional funds could be critical in making some dream homes in to reality as they could be invested towards property purchase. Increased income in hand also improves the homebuyer’s ability to pay EMIs, making it easier to get a loan.
- Extended benefits under Section 80-IBA
Benefits under Section 80-IBA of the IT Act – that deals with deductions in respect of profits and gains from housing projects – were extended by another year. As a result, all approved housing projects till March 31, 2020 will continue to enjoy the deductions in addition to the gains from income tax exemption. This move will help bring more houses under the affordable housing plans as even developers stand to gain by tax exemptions on unsold inventories for up to 2 years.
- Dedicated fund for Pradhan Mantri Awas Yojana (PMAY)
The PMAY initiative is key to meet the government’s ambitious plan to provide Affordable Housing for All by 2022. The Interim Budget has decreased PMAY’s allocation – down to INR 25,853 crore from last year’s INR 26,405 crore. However, at the same time the budget has made provisions for a dedicated fund for affordable housing. This fund aims to help banks and housing finance companies enhance their exposure in the affordable housing loan segment in turn supporting the PMAY.
- Tax savings on capital gains from investments in two homes
Till date, Section 54 of the Income Tax Act allowed homebuyers to save on capital gains from the sale of a residential property by buying one more home. Interim budget 2019, allows this capital gains rollover to cover 2 housing properties instead of one. This benefit is only allowed once in a lifetime and that too for capital gains of up to INR 2 crore only. This move is expected to redouble interest from second time homebuyers.
- No more tax on notional rent for second self occupied house
Buying a second home as also an added incentive now. Till now, if you had a second self-occupied home, you needed to pay tax on the notional rent the property would have generated. The interim budget 2019 has scrapped the tax on notional rent from a second self-occupied home leading to considerable tax saving for the second homebuyer.
- Increase in TDS limit for rent Paid by Non-Individuals
For those looking to buy a home for gains from rental income, budget 2019 has a welcome move. Currently, as per Section 194I of IT Act, non-individuals like companies had to deduct 10% as TDS (Tax Deducted At Source) if the rent paid by them exceeded INR 1.8 lakh in a financial year. The interim budget has proposed an increase in this limit to INR 2.4 lakh per annum making an additional INR 60,000 TDS free.
- Possible reduction in GST
The current rate of GST for under-construction real estate projects is 18% that after considering reduction towards land value effectively becomes 12%. The GST Committee has reportedly urged the Union government to lower the GST rate to 12%, which effectively works out to 8% on the total sale price. This proposal is expected to see the green light once the new government is formed.
Overall, this budget has several incentives for the informed homebuyer whether they are looking to buy a property for self-use or for investment purposes. Given the benefits for developers as well, we can look forward to a positive growth in the market.