The ‘demonetisation’ drive of the Indian Government was designed to take the country towards a cashless economy. Given this drive and enactment of the Real Estate Regulation Act, 2016, the public (common man and investors alike) is waiting with bated breath for a fall in prices in the housing sector and the expectations from the annual budget of 2017-18 (Budget) are on the lines that prices in the housing sector would fall.
Commercially, in joint development projects, the landowner receives consideration partly in cash and partly in kind from the builder. More often than not, the consideration in kind is deferred until the completion of the project. This creates a cash crunch in the hands of the land-owner as he is taxed in the year of the transfer itself irrespective of completion or termination of the project. To avoid this hardship, land-owners wish for taxation to be linked with the receipt of consideration.
Income tax law provides for deduction of tax from the gross sale consideration made to a resident seller of an immovable property (under certain circumstances). There can be instances where the resident seller may have to claim this tax deducted as refund owing to the exemptions and deductions claimed by such seller. Currently, the mechanism of approaching the tax authorities to lower a tax deduction incidence by obtaining a certificate is not available in the instant case, albeit it is available for various other payments. It is expected that such mechanism would be extended to the real estate sector as well.
Given the high costs associated with purchasing a residential property in India, especially in metropolitan cities, one is hopeful that this Budget would increase the limits of claiming deductions relating to housing loans. This would give a much-needed impetus to the mobilization of funds towards the real estate sector.
Lastly, while Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) were marketed as an attractive alternate form of investments in the real estate/ infrastructure sector, they have not been implemented commercially thus far. To align the tax regime with available structuring options and give a fillip to this alternative form of investment, the tax related relaxation which was extended to sponsors in case of transfer of shares of SPVs to business trusts should also be extended to transfer of real estate/ infrastructure assets.