In the super-hero movie Spiderman, Peter Parker’s uncle famously said, “With great power comes great responsibility” and this statement is true with the Budget announcements made by the Finance Minister, Arun Jaitley, on February 28.
He knows clearly that the mandate to form and run the government of the largest democracy in the world came with great responsibility and more than that lots of expectations have been riding on him and the rest of the government ever since they were voted to power. It would have been easy to make it a popular Budget, but it would not have been practical, hence the FM chose the more pragmatic approach by giving thrust to growth; and the infrastructure sector seem to be the largest beneficiary of such push and impetus.
No doubt that the real estate sector per se did not get any mention at all in any of the announcements but the focus area has been allowing investments in various tax-saving instruments.
It was expected that real estate sector would get the long-awaited infrastructure status which would have given access to cheaper funds to promote growth; but that was not to be, it is status quo. The next expectation was on increase in the tax saving limits under Section 80C from Rs. 1.50 lakh to Rs. 3 lakh, but the Budget ignored that as well. So the interest and the principal component exemptions would remain unchanged at Rs.1.50 lakh and Rs.2 lakh respectively.
As additional incentive the tax saving opportunities have been increased by giving newer sops under various Income Tax sections. Apart from Section 80C deductions, contribution for National Pension Scheme (NPS) has been increased from Rs.1 lakh to Rs.1.50 lakh under Section 80CCD; and additional claim on medical insurance premium of up to Rs.25,000 (increased from Rs.15,000) under Section 80D and transport allowance of Rs.19,200 (increased from Rs.9,600).
Now, where did this Budget go wrong? The answer: by raising the service tax rates from 12.36% to 14%, whatever incentives that were given with a hope that it would help people to retain some money in their pockets seem to get evaporated. This would have a negative impact on home buyers that would add at least 0.41% to the value of the property. Considering that the values of such transactions are high the outflow at just this percentage would be a lot.
A drainAdditionally, all spending that attracts service tax would drain additional money which almost balances the savings that an individual would have made. Eating out in restaurants, travelling by air, buying packaged water and colas, life insurance premiums, mobile bill payments attract service tax and this puts a strain on spending.
The Budget also offered clarity on taxation pertaining to REIT (Real Estate Investment Trust) and InvIT (Infrastructure Investment Trust) that is expected to be a game-changer as far as the opportunities that could open up in fresh flow of funds into the real estate sector. There is no threat of double-taxation on the gains which now will be taxed only at the hands of the unitholders (investors). With this clarity the REIT aspirants have breathed a sigh of relief and we can expect a flurry of launches in the coming days.
Ever since the new government was formed there has been a lots of mention on black money and how to control it; the Budget has made it very clear that benami transactions in real estate would be curbed with the introduction of a special Bill, which means that investments in fictitious names with unaccounted money would be viewed seriously which could lead to imprisonment of up to 10 years.
The only hope for the home loan segment is to pray that oil prices would not spoil the party of inflation and its closest relative, interest rates, by rising back to $100 per barrel. It would be a disaster if inflation raises and interest rates as a consequence remain unchanged or even get increased. Consistent lower inflation only can bring the interest rates down that would benefit new and existing borrowers; otherwise it would be two steps forward, one step backward for the common man.
