GST rates needs to be streamlined further and made uniform for both affordable and non-affordable housing projects
The year, 2020 has been a defining period in human history with the COVID-19 pandemic disrupting the normal course of life. Since the outbreak of the pandemic in India earlier this year, the real estate sector, which was already roiling under a liquidity crunch, witnessed unprecedented challenges.
The silver lining was that the government and regulators continued to provide fiscal and policy support to this core industry. With the end of the pandemic and its impact still remaining far in the horizon, ample policy support is still needed for the real estate sector’s bounce. The Union Budget 2020-21 will consider some of the below mentioned reforms to catalyse the sector’s resurgence in the coming months.
Besides the socio-economic implications of the housing sector on the economy and society, the real estate sector has a significant direct contribution of around 6-7 to per cent of the GDP. This makes it utterly important that the sector be accorded the infrastructure status and included in the priority lending list of banks. Currently, only the affordable housing sector has been granted infrastructure status.
The government has already extended the deadline for the PMAY’s Credit Linked Subsidy Scheme (CLSS) for the MIG category till March 2021. This subsidy can be further extended by another year till March 2022, not only because of COVID-19’s impact on the economy but also considering that the Economically Weaker Section (EWS) and the Lower- Income Group (LIG) have time till March 31, 2022, to avail the CLSS subsidy.
No price cap on affordable housing
The government has set a cap on the carpet area of affordable housing at 90 square metres in non-metropolitan areas and 60 square metres in metropolitan cities along with a price cap on the property value at Rs 45 lakh. Since houses of the same carpet area are priced higher in metropolitan cities compared to non-metros and towns, the ceiling of Rs 45 lakh applicable for an affordable house should be abolished.
Extended tax benefits
The government currently allows an additional income tax deduction of up to Rs 1.50 lakh on the interest payment on housing loans for affordable houses. In addition, a tax holiday has been also provided by the government in the last Budget for affordable housing developers, under which 100 per cent tax deduction under section 80IBA was allowed until March 2021 for affordable housing projects. Both these tax benefits should be extended by another year.
Though the government reduced the GST rates applicable to housing in 2019, this tax needs to be streamlined further and made uniform for both affordable and non-
affordable housing projects. The GST for all under-construction projects should be capped at 1 per cent. Currently, the GST applicable for affordable housing projects is 1 per cent and on non-affordable housing is 5 per cent.
Reintroduce ITC, scrap lock-in norm
Reintroducing the Input Tax Credit (ITC) in this Budget and allowing developers to claim this benefit along with low GST rates of 1 per cent and 5 per cent till March 31st, 2022 will give construction activities a leg up. The construction work was completely halted for many months owing to the nationwide lockdown.
The author of the article is CEO, Reliance Homes Finance