As we know, Union Budget for 2013-14 has been announced. And we think it is not a great owner to hearing this budget to realty sector. The Budget proposals for the realty sector have not enthused developers in the metro cities,as these are wholly focused on the low-budget housing segment.
Finance minister P Chidambaram announced a number of sops for low-income homebuyers in the Union Budget for 2013-14.
However, for the affluent class, he increased the tax burden in acquiring a house. Experts and developers feel that these measures will increase the cost of houses in the NCR and other metro cities like Mumbai, Bangalore, Pune, and Chennai.
In order to promote home ownership,the finance minister allowed an additional deduction of interest up to Rs 1,00,000 from the taxable income if a person buys his first home,by taking a home loan of up to Rs 25 lakh from a bank.The value of the property should not exceed Rs 40 lakh,and should be his first house.That means,at the time of sanction of the loan,the assessee should not own any residential property.This facility will remain applicable for 2013-14 financial year only.
Though the cap of Rs 25 lakh on loan will not make it very attractive in metro cities, it will meet the requirement of most home buyers in small cities. Pankaj Bajaj, president of Credai NCR and MD of Eldeco Infrastructure, said that the additional deduction of Rs 1 lakh on interest on a home loan of up to Rs 25 lakh for first-time home buyers is going to make home-buying a little easier for young people who are buying their first house in Tier II cities where prices are lower. I don’t expect it to have much of an impact in bigger cities where nothing is available in this price range, Bajaj said.
At present,deduction against home loan repayment is allowed up to Rs 1.50 lakh from a persons taxable income.This additional deduction of Rs 1 lakh will peg the total deduction against interest payment on home loan at Rs 2.50 lakh.This will reduce the interest burden substantially.
Take the case of a person whose income is in the 30% tax bracket who takes a home loan of Rs 25 lakh. On Rs 25 lakh home loan, the interest payment during a year will be around Rs 2.50 lakh at 10% interest.
This entire amount will be deducted from his income.Because of this,his tax bill will be lowered by Rs 77,250 including the education cess.If this benefit is adjusted in the interest payment,his net interest liability will be Rs 1,72,750.
Therefore,the effective tax rate for the home buyer will be around 7% instead of 10%. But if the borrowers income is in the lower tax bracket of 10% or 20%,the benefit accrued to him will be lower.
Sanjay Dutt, executive MD, South Asia, of Cushman & Wakefield, said that developers can take comfort from this provision as they will now be assured of genuine buyers in this category. However,they will have to ensure adequate supply within the price range,which is a difficult task,as they are faced with problems like high input costs of land,construction materials, labour and finances. Present opportunities for affordable housing are mainly in Tier II and III cities or on the outskirts of major cities, Dutt said.
Rakesh Yadav, the MD of Antriksh Group,said that the measure will help home buyers in small towns but will not have much impact in big cities.
In a post-Budget conference organized by MagicBricks, R V Verma,the chairman of National Housing Bank,was optimistic about the Budget.The government has boosted demand by offering additional deduction of Rs 1 lakh.Supply for low-budget housing,too,will start responding to it.Though there is no direct stimulus for supply,supply will eventually start responding to demand with a boost in demand after announcement of additional deduction of Rs 1 lakh for housing up to Rs 25 lakh, Verma said.
However,the Budget has levied a TDS at the rate of 1% on the value of the transfer of immovable property on the affluent home buyers,where the consideration exceeds Rs 50 lakh. Sanjay Dutt of Cushman & Wakefield said the decision to introduce TDS for real estate transactions is aimed at ensuring that taxes are collected and some transparency is brought into the sector.
Whilst this is a laudable initiative,it may not ensure complete transparency as some unscrupulous sellers may still insist on undervaluing their properties in legal documents in order to avoid or reduce the quantum of tax they are liable to pay.Besides, Dutt said,this may also lead to an increase in the cost for property buyers,as sellers may insist on passing on the burden of the tax to them.Further,this adds to the responsibilities of the buyers as they will have to deduct the tax amount from the sellers payout and deposit the same with the government.
Another expert pointed out that if one sells a house to buy another house,his capital gains tax liability becomes zero.But,if he pays the TDS against the capital gains tax,he will have to wait for the refund of the same.Even at 1%,his TDS will be Rs 1 lakh if his house is worth Rs 1 crore.
DTZ research team also pointed out that while application of TDS will be a burden on end buyers,it also has a scope to reduce speculations in real estate market,particularly from investors.
Moreover,the team further said the proposal is unclear on the issue as to how the tax will be deducted and,when a buyer wishes to sell before completion or handover of the property,who pays the balance tax.
ANSHUMAN MAGAZINE,THE CMD OF CBRE SOUTH ASIA PVT LTD,SAYS THAT OVERALL,THE BUDGET WAS NOT AS BOLD AS WAS EXPECTED