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Market trends

Decoding the interim budget from a real estate perspective

By on February 2, 2020

A lot has been said about the economic slowdown in India in the recent past and this budget has been one of the most anticipated in recent times. Mostly because, this was seen as an opportunity for the Government to be able to revive the economy and also, instill hope amongst its citizens. The expectation was to accentuate consumption and growth, especially in key sectors like real estate.

Here are the key takeaways from the interim budget that was announced yesterday-

Direct Impact of Union Budget 2020 for Real Estate

For the Real Estate Consumer
Extension in availing benefit of Deduction for Interest on Loans for Affordable Housing: The time to avail an additional deduction of up to Rs. 1.5 lacs for interest paid on loans taken for the purchase of an affordable house has been extended by a year to 31st March 2021. This will ensure that more people avail of this benefit and will further incentivise the affordable housing sector.

For the Real Estate Investor
Increase in the limit of taxing Capital Gains from the difference between the Circle Rate and Agreement Value in Real Estate Transactions:
Currently, while taxing income from capital gains, business profits, and other sources in respect of transactions in real estate, if the consideration value is less than the circle rate by more than 5 percent, the difference is counted as income both in the hands of the purchaser and seller. To make real estate transactions more attractive, this limit has been increased from 5% to 10%.

For the Real Estate Developer
Extension in Availing Tax Holiday on Profits by Developers: To boost the supply of affordable houses in the country, a tax holiday is provided on the profits earned by developers of affordable housing projects approved by 31st March 2021.

Removal of Dividend Distribution Tax: Currently, companies are required to pay Dividend Distribution Tax (DDT) on the dividend paid to its shareholders at the rate of 15% plus applicable surcharge and cess in addition to the tax payable by the company on its profits. The DDT will now be removed, and the dividend shall be taxed only in the hands of the recipients at the applicable rate. It is now allowed to claim a deduction for the dividend received by holding company from its subsidiary. We hope this improves the cash flow position of Real Estate Companies.

Indirect Impact of Union Budget 2020 for Real Estate

In the new tax regime, a taxpayer cannot avail of a deduction of upto Rs.2 lakh of interest on loan taken for the purchase of a house. However, the new tax regime shall be optional for the taxpayers. Following are the tax rates for reference:

Taxable Income Slab (Rs) Existing Tax Rates New Tax Rates
0 – 2.5 Lakh Exempt Exempt
2.5 – 5 Lakh 5% 5%
5 – 7.5 Lakh 20% 10%
7.5 – 10 Lakh 20% 15%
10 – 12.5 Lakh 30% 20%
12.5 – 15 Lakh 30% 25%
Above 15 Lakh 30% 30%

This may make a new home buyer think twice before the purchase of a new property.
With this pro-middle-class budget, we certainly hope to see an increase in the purchasing power of affordable housing. What’s your opinion?

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