The Interim Budget presented by the Interim Finance Minister, Piyush Goyal on February 01, 2019, is a balanced budget as it focuses on social infrastructure, digital infrastructure, injecting liquidity in the economy, and leaving more funds with taxpayers to stimulate savings and consumption. The schemes envisaged for farmers coupled with improved rural connectivity will provide the much-needed stimulus to rural income and will increase the overall consumption for sectors like FMCG and retail, which will boost demand for sectors like warehousing and logistics. Rebate for individual taxpayers earning up to Rs. 5 lakh and an increase in standard deduction for salaried taxpayers will translate into more sales for affordable housing. The following amendments proposed in the interim budget will also help in reviving the sentiments of the real estate sector which is reeling under the impact of regulatory and structural changes over the past few years.
Notional Rent on property held as stock-in-trade: To spur the real estate sector, the period of exemption from levy of tax on notional rent on unsold inventory of land and building, is proposed to be extended from one year to two years, from the end of the financial year in which the certificate of completion of construction is obtained from the competent authority. The tax relaxation for two years will help the developer to better dispose the piled inventory.
Sunset clause extended: The benefits of 100% tax exemption under Section 80-IBA of the Income Tax Act has been extended for one more year, i.e. to the housing projects approved till March 31, 2020. Affordable housing is expected to receive a fillip with the proposed extension, as developers of such projects can now register their projects until the end of the financial year 2019-20 as against 2018-19 to avail the exemption.
Exemption of capital gains (under section 54) extended to investment in two house properties: Prospective home - buyers can now buy two separate properties to avail Long-Term Capital Gains Tax (LTCG) exemption on the sale of an existing property. However, this can be availed by the buyer only once in their lifetime and is available for LTCG not exceeding Rs. 2 crore.
Exemption on notional income of second self-occupied house: Income Tax levied on notional rent of second self-occupied house has now been exempted. The government’s move to exempt levy on notional tax is a major relief from tax liability for the buyer without any real income. However, the government has clarified that deduction for interest on home loan for both the properties would be maximum of Rs. 2,00,000. This will boost sales of second homes and will particularly benefit people relocating to the metros and drive residential sales in tier-II and tier-III cities. The benefit of rollover of capital gains to two residential houses, is also expected to benefit residential sales in peripheral locations of Tier-I cities as it will allow homebuyers to diversify their residential investment portfolio. A positive impetus for real estate will help in employment generation and will also benefit the financial institutions, apart from cement and steel industries.
Key announcements on digital infrastructure and other issues to boost investments
This government has given great thrust to digitization and technology led governance. The National Programme on Artificial Intelligence is a progressive step towards innovation and will help India in retaining its edge in the international technology landscape, a sector which is one of the largest occupiers of commercial real estate in the country. It would also play an important role in bringing financial inclusion as the equity market investment will become more permeating and people from rural and remote areas would become accessible to the equity markets.
To transform the income tax department into a more assessee friendly one, it has been proposed to process income-tax returns within 24 hours of filing. This would also ensure speedy disbursement of tax refunds. Further, the government has proposed a human-less structure for all the assessments and verification of income-tax returns. Within two years, all income tax returns will be verified and scrutinised electronically by an anonymised tax system without any human intervention.
Investment is also bound to increase due to more disposable income. Taxpayers earning a taxable income up to Rs. 5 lakh have been allowed full tax rebate. This will impart a direct benefit to approximately three crore taxpayers comprising self-employed, small business/ traders, and salaried class. Further, the proposals to increase standard deduction from Rs. 40,000 to Rs. 50,000 and increase of TDS threshold for deduction of tax on rental income from Rs. 1,80,000 to Rs. 2,40,000 and interest from banks and post office from Rs. 10,000 to Rs. 40,000 will also enhance liquidity of small taxpayers. MSMEs are the growth engines of the economy and hence an interest subvention scheme has been proposed for them. The said subvention scheme is also expected to drive capex and generate employment in the unorganised sector. The government’s vision of becoming a five trillion dollar economy in the next five years and the ten dimensions envisaged to attain the same have set the tone for future discourse and is also an indication of the fact that this was just an interim budget.