Need reforms in the real estate industry

We have a list of suggestions and reforms that we expect from our Finance Minister this budget.

1. The newly introduced National Housing Policy, 2008 extensively speaks about affordable housing for the Economically Weaker Section (EWS) or Low Income Group (LIG) Categories. Adding the following sub-clause in Section 10 of the Income Tax Act, 1961 will give a thrust to this initiative.

S 10(43):

a. Any income arising to the real estate developers, who develop exclusive residential housing project for EWS and LIG categories upto 900 square feet, should be exempt from income tax.
b. In case, this housing project comprises EWS, LIG and other commercial units, then the developer should get exemption in proportion to the income arising from housing of EWS and LIG categories.

If introduced, the above provision will provide impetus to the development of housing sector particularly for the middle class.

2. The rental housing should be developed keeping in mind EWS and middle-income group of taxpayers. The Government should provide tax sops (under Section 10 of the Income Tax Act, 1961) to encourage individual taxpayers and corporate taxpayers to undertake rental housing. This amendment to the Income Tax Act would go a long way in increasing the rental housing concept:

S 10(44):
Rental income earned from letting out residential property (on and from April 1, 2008) would be exempt from income tax for five consecutive years if the accommodation does not exceed super built up area of 900 square feet of each such unit. This provision would be applicable only for such residential accommodation, which is ready for occupation only after April 1, 2008.

3. The Securities and Exchange Board of India (SEBI) has come out with detailed guidelines for Real Estate Investment Trusts (REITES). They are expected to come into operation very shortly.
The Government should amend the provisions of the Income-tax Law to provide for tax exemption of the dividend arising to the Real Estate Investment Trusts and similarly the income arising to the unit holder. The long-term capital gains arising on sale of REITES units should be tax exempted while the short-term capital gains should be taxed at 10%. Thus, the provisions relating to REITES and the investor in shares and mutual funds should be at par with the existing tax provisions relating to income of equity-oriented mutual funds. Also the holding period of REITES units should be twelve months so that it is will be considered a long-term gain.

4. The limit of exemption of service tax should be Rs 8 lakh per property. The service tax on commercial property should be made applicable only to properties given on rent on or after April 1, 2007.

5. The stamp duty rates should uniformly be slashed down to 2%. This would result in more revenue collection and would also reduce tax evasion drastically. The stamp duty on real estate purchased by the Real Estate Investment Trusts should be nil.

6. With respect to one self-occupied residential property, the maximum limit of deduction should be enhanced from Rs 150,000 to the actual interest payment without any upper limit. Providing higher tax deduction will give a boost to residential housing.

7. Presently tax deduction as per Section 80GG is granted to an individual taxpayer for rent payment. This deduction is up to 25% of the income but subject to a ceiling of Rs 2,000 per month. This upper ceiling should be scrapped and that the deduction should be restricted up to 25% of the income.

8. Higher rate of depreciation, ie 30% per annum, should be introduced on residential accommodation if an employer builds residential accommodation for its employees. This would inspire the corporate taxpayers to take up massive activity of building housing colonies and buying residential housing for its employees.

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