
MUMBAI: The realty sector is pleased as punch with the budget continuing to focus on affordable housing. The finance ministry proposed three significant measures to boost the housing sector in general and rental housing in particular alongside tax goodies.
The budget this time has massively increased the income tax exemption limits to Rs 12 lakh per annum under the new tax regime, which will encourage people to invest in real estate in general and housing in particular.
The second give-away of allowing homeowners to mark two homes as self-occupied (provided one is not rented out, and claim nil valuation), is a big boost to rental housing.
The third measure of more than doubling the income tax cap on rental income to Rs 6 lakh from next fiscal from Rs 2.4 lakh now, will give another leg-up to rental housing both for homeowners as well as for those taking homes on rent.
In effect, the second measure of allowing nil valuation of two homes is more of a process easing than actual tax benefits, though.
Until fiscal 2019, the threshold on tax deducted at source or TDS for rental incomes was Rs 1.8 lakh per year, as per Section 194-I of the Income Tax Act, while the extant income tax exemption limit is capped at Rs 7 lakh provided one chooses to be in the new tax regime.
The optimism spawns from the fact that as many as three-quarters of the 30 million taxpayers are in the new regime, according to Finance and Revenue Secretary Tuhin Kanta Pandey.
In the budget, the finance minister Nirmala Sitharaman has made three big tax giveaways—increasing the threshold for no tax to Rs 12 lakh, the cap on tax-deducted at source (TDS) on income from rentals to Rs 6 lakh from Rs 2.40 lakh and allowing anyone to own two houses and claim no tax liability on both by marking them as nil value provided the one of the two units is not rented.
These measures provide big relief for those who own second homes and receive rental income on them, especially investor-owners, and can open up new rental housing, said tax experts.
Some real estate experts consider allowing homeowners to declare two houses as "self-occupied" with nil value is the biggest tax relief and it will give further impetus to rental housing.
Anuj Puri, chairman of Anarock group, said investors can now claim “nil valuation” for two self-occupied properties, instead of just one and this is a big positive move for residential realty investment, while higher income tax exemption caps will boost fresh home investments.
“The simplified TDS on rent decreases the compliance burden and enhances liquidity for landlords and will positively impact the rental housing market, especially in the metros," Puri said.
"Previously, homeowners could claim only one self-occupied property as tax-free; now, they can claim two, thus removing taxation on notional rental income from a second home,” he said, adding this minimises tax pressures, promotes homeownership, and facilitates real estate investment, especially in second homes and big cities.
"Middle-class homebuyers, landlords, and investors can now benefit from reduced tax liabilities, better affordability, and less compliance hassles," he said.
Puri further said that by simplifying financial constraints and tax rules, the budget has made property ownership and rental housing more accessible. This gives a significant fillip to the real estate sector, specifically to and housing demand.
According to Abhilash Pillai, a partner at law firm Cyril Amarchand Mangaldas, exempting rent up to Rs 6 lakh from TDS will greatly benefit tenants, who account for 40 per cent of residential rentals.
"The move will ease the financial burden on middle-class families, who often struggle with high rental costs and additional deductions. It will also encourage more investor-owners to rent out properties sans worrying about paying tax, boosting the residential realty by improving supply and affordability," he says.
According to Pradeep Aggarwal, founder-chairman of realty player Signature Global, income tax relief is a masterstroke of direct tax reforms and that the exemption in income up to Rs 12 lakh will significantly boost disposable income, increasing affordability for homebuyers and driving real estate demand.
Boman Irani, national president of realty lobby Credai, says the higher income tax exemption of up to Rs 12 lakh, coupled with increasing the TDS threshold on rent from Rs 2.4 lakh to Rs 6 lakh, will significantly boost housing demand and overall consumption.
Sandeep Chhillar, chairman of another developer Landmark Group, feels higher income tax rebates has come as a great encouragement for first-time homebuyers.
Santosh Agarwal, executive director of Alphacorp says no income tax up to Rs 12 lakh, under the new tax regime, will help people closer to their dream of owning a house”.
Tribhuwan Adhikari, chief executive of LIC Housing Finance feels the budget announcements on the tax exemptions make it easier for the middle-class, especially salaried individuals to plan for homeownership now. This shall be positively impacting the demand for affordable housing.
Bhavesh Kothari of Property First says the budget has given significant impetus to supporting the real estate sector, especially for the middle class. The expansion of the Swamih fund is a crucial step towards stalled housing projects, delivery of 1,00,000 homes, and much-needed liquidity in the affordable and mid-income housing segment.
Madhusudan G of the Sumadhura Group feels the income tax relaxation will boost housing demand as it increases liquidity. The removal of restrictions on owning two self-occupied properties without tax implications and the higher TDS exemption threshold on rental income will spur fresh residential investments.
According to Adarsh Narahari of Primus Senior Living, though the doubling the TDS threshold on interest income for senior citizens from Rs 50,000 to Rs 1 lakh is a commendable move as it will ease their financial burden, a well-thought-out reverse mortgage policy could have been a game-changer as it would have unlocked liquidity for the elderly.