Budget 2015: Give boost to realty by tax sops for affordable housing, hike in I-T exemption

By Neeraj Bansal

There is significant uncertainty surrounding the taxation of Joint Development Agreements or JDA. For instance, this is to be found around the timing of the transfer and consequential year of taxation, value for tax purposes, substitution of stamp duty value if the value otherwise is lower, constitution of AOP, applicability of service tax, etc.

 Budget 2015: Give boost to realty by tax sops for affordable housing, hike in I-T exemption


JDA is gaining prominence as a mode of transaction in the sector since it does not involve immediate cash outflow to the developer. The government should provide clarity on some of the above stated issues in the upcoming budget.

Section 2(47) should be appropriately amended to tax the landowner.

• In case of a revenue sharing arrangement, when revenue becomes receivable by the land owner
• In case of area sharing arrangement , on receipt of possession of constructed area

Deeming provisions of taxing transfer of property based on stamp duty valuation results into notional income tax, be it a transfer of capital or business asset. The stamp duty valuation fixed by the state government does not necessarily reflect the actual market value having full regard to factors such as distress sale, condition of the property, quality of construction, floor-rise, a school in the vicinity, market, hospitals, etc. In view of the above, the Budget should delete both the provisions i.e. Section 43CA and Section 50C.

Re-introduction of exemption granted to SEZs under the Minimum Alternate Tax (MAT) provisions: MAT exemption promised under the SEZ Act to SEZ developers and unit holders was withdrawn from 1 April 2011. The business plans of several e SEZ developers/unit holders were based on such promise and accordingly, the subsequent withdrawal has likely caused an adverse impact. In order to provide impetus to the now stagnant SEZ growth, MAT exemption needs to be restored.

Tax incentives for affordable housing: In order to achieve the mission of ‘Housing for All by 2022’, the government should provide various incentives on the direct and indirect taxation front to the developers of affordable housing. The present provisions of Section 35AD do not provide any incentives to this segment of the real estate sector.

‘Infrastructure’ status should be provided to large projects like township development, mega town ship development, Special Residential Zones (SRZ) and consequential incentives on direct and indirect taxation front should be provided to the developers. This is expected to facilitate faster development of smart cities and industrial corridors.

Moves to improve the purchasing power of home buyers would be a welcome move to augment demand.  Towards this step, the basic exemption limit could be increased. An increased deduction on housing loan interest could be considered.  It would be more impactful if the government allowed for complete tax deduction in respect of one house, subject to limit. Home buyers are currently also facing the issue of multiplicity of taxes; for example, a home buyer needs to pay VAT, service tax and stamp duty.  While VAT and stamp duty are state level taxes and service tax is a central levy, from a customer’s perspective, for the same transaction, multiple taxes are being levied.  Rationalization in this regard can bring significant relief to the home buyer.

Funding is one of the biggest concerns for the real estate sector. Last year, the government attempted to improve this issue through introduction of Real Estate Investment Trust -- REIT. However, in order to make REIT successful, further clarifications/relaxation in tax schemes should be provided.

(The author is Partner and head of real estate practice, KPMG in India. The views and opinions herein are those of the author and do not necessarily represent the views and opinions of KPMG in India. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.)

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Updated Date: Feb 21, 2015 12:57:45 IST