The real estate industry had expected a lot from Nirmala Sitharaman’s Union Budget for the Financial Year 2020-21. A lot of these expectations were met while some other pressing issues failed to come to attention. Affordable housing again received a major boost and several taxation relief measures were also taken which could be good for the property sector. Read on to understand the impact of Union Budget 2020 on real estate.
The Prime Minister’s dream of Housing for All is nearing reality as this budget has also shown efforts in improving the affordable housing segment. In the last budget, additional tax exemption was allowed to the buyers of affordable homes (value up to Rs. 45 Lakh) under Section 80EEA. Under this, they get an additional deduction of up to Rs. 1.5 Lakh against the interest payment on home loan, over and above the Rs. 2 Lakh existing deduction. The deadline for this benefit was only up to March 2020 but, in this budget, it has been extended to March 2021 giving them one more year of relief wherein the affordable home buyers can get a total tax deduction of Rs. 3.5 Lakh.
In the Union Budget 2020, the government has planned tax relief for individual taxpayers in the form of dual slab option. Under this, they have given an option to the taxpayers to select from the two slabs. Income tax rates under the two slabs are shown in the table below:
|Taxable Income||Existing Rate||New Rate|
|Up to Rs. 2.5 Lakh||NIL||NIL|
|Rs. 2.5 Lakh to Rs. 5 Lakh||5%||5%|
|Rs. 5 Lakh to Rs. 7 Lakh||20%||10%|
|Rs. 7.5 Lakh to Rs. 10 Lakh||20%||15%|
|Rs. 10 Lakh to Rs. 12.5 Lakh||30%||20%|
|Rs. 12.5 Lakh to Rs. 15 Lakh||30%||25%|
|Rs. 15 Lakh and above||30%||30%|
With the new tax rates in place, middle class taxpayers will have more disposable income which they can use to purchase properties which, in turn, has the potential to revive the real estate market. Though the Income Tax related announcements do not impact the property market directly, they may be creating new demands in the sector. At the same time, the Finance Minister also proposed to abolish around 70 different types of tax exemption which has a slight potential of going against the industry.
In her Budget speech, the Finance Minister also announced several steps that would give a boost to the infrastructure segment. More than 6,500 national infrastructure projects are already in the pipeline and a budget of Rs. 27,300 Crores has been allocated for the betterment of Industry and Commerce in the country. There are also plans to build National Highways which will directly and positively impact the real estate sector.
Moreover, the budget gave some impetus to the warehousing situation in the country. There are plans to build more warehouses in the country and give them a boost through the viability gap funding under the Public Private Partnership (PPP) arrangement. This again works out well for the commercial property market.
As we have said before, the liquidity crisis has been a major deterrent for the Indian Real Estate Industry. Though only a little was spoken about it in the budget, they have proposed to enhance the credit guarantee to the Non-Banking Financial Corporations (NBFCs) and Housing Finance Corporations (HFCs). This will bring more liquidity in the market and might bring some respite to real estate as well.
Another great news for the real estate industry is that the government has proposed to develop five new smart cities in the country. While the site locations have not been finalised, the plan is to choose areas that will work out as good economic corridors. Demand will be generated and new jobs will be created.
Overall, a lot of positive things are planned for the real estate industry. However, a number of pressing issues have still gone unnoticed such as the need for better liquidity in the market so that the developers ailing for funds could get relief. There were no direct measures taken for the property market which almost all market players were expecting. The government could have been much bolder with respect to real estate but whatever came to the market were majorly in the form of improving buyer sentiments and nothing else.