Demand for affordable housing in India poised to grow this year

V. Nagarajan

In a remarkable move to alleviate the hardship of middle class, finance minister Nirmala Sitharaman has deftly handled the budget and created history unlike her predecessors by raising the tax-free income threshold to Rs12 lakh. She also raised the threshold limits for exemption from TDS on rental income from Rs2,40,000 a year to Rs6,00,000.

It does mean that landlords need not deduct tax on rent up to Rs50,000 a month.

Further, rationalising the TDS for senior citizens and increasing the threshold limit from Rs50,000 to Rs1,00,000 are laudable moves and will put more money in the hands of people.

In a nutshell, the finance minister has unveiled a significant enhancement to the tax rebate under section 87A of the Income-Tax Act, 1961. A tax payer in the new regime with an income of Rs12 lakh will get a benefit of Rs80,000 in tax; a person having income of Rs18 lakh will get a benefit of Rs70,000 in tax; and a person with an income of Rs25 lakh gets a benefit of Rs1.1 lakh, said Nirmala Sitharaman. Besides, demand for affordable and middle-income housing will gain traction especially among salaried classes.

The budget has extended tax benefits for two self-occupied properties which will encourage more people to invest in housing leading to a surge in demand in the residential sector. What is significant is that this will stimulate investment both in primary and secondary markets.  The removal of tax on deemed rental income will enhance affordability for homebuyers and immensely support rental housing market. It is further expected to fuel the demand in tier 2 and 3 cities as well.

Yet another significant initiative is the proposal to develop foundational geospatial infrastructure and data. It will facilitate modernisation of land records, urban planning and design of infrastructure projects.

Industry experts feel that this will transform the landscape for developers. In fact, access to accurate and up-to-date information on land ownership, boundaries and other factors would contribute significantly to the reduction in ambiguity, legal hassles and save precious time.

On a project level, the special window for affordable and middle-income housing (SWAMIH) fund 2 will be created as a blended finance facility, with contributions from the government, banks, and private investors. This is expected to expedite the completion of 100,000 housing units by 2025. This will go a long way in unlocking stalled housing inventory and stabilising property prices.

The allocation of Rs 10,000 crore AIF fund of funds for startups will drive demand for office space, mixed use developments and innovation hubs. The asset monetisation plan (2025-30) of Rs10,000 crore and Rs1,00,000 crore urban challenge fund will expedite urban transformation projects. This is expected to unlock land and drive real estate development.

In a major initiative, the government has formulated schemes for promoting global capability centres (GCC) in tier II cities besides metros. It has already contributed 35-40 per cent of the overall office leasing activity last year.

In 2023, it registered 20 per cent growth. Companies from sectors including technology, E&M and BFSI would drive demand with sectors such as automobile, semiconductors and life sciences.

In a related development, with investment timeline extended till March 31, 2030, more foreign capital inflow would ensure enabling funding availability for real estate projects and infrastructure development.  The development of 50 tourist destinations to be carried out in partnership with state governments providing Mudra loans for homestays will trigger demand in hospitality sector.

On the flip side, the budget has not addressed the crucial factor of according infrastructure status to the real estate sector on which 265 ancillary industries are dependant thus necessitating developers to borrow at prohibitive funding cost. There has been no increase in home loan deduction nor reforms for single window clearance for project approvals or fiscal sops to REITs to encourage retail and institutional participation. However, the growth-oriented budget has enhanced the spending power of India’s rising middle class amidst positioning the country as the fastest-growing major economy globally.

I am disposing my existing unit to buy a larger unit. Is capital gains tax still applicable? Arvind Kumar, Sharjah.

Capital gain will be partially or fully exempted if you purchase/construct a residential house within a specific time frame. The important change is where the amount of capital gain does not exceed Rs2 crore, you may purchase or construct two residential houses and all other conditions as applicable for the new asset will apply. However, this option can be availed once in a lifetime.

What is the TDS rate applicable from sale consideration while selling a unit. Rashmi Kant, Dubai

In the case of purchase from residents, there is no need to deduct tax at source if the sale proceeds do not exceed Rs 5 million. In case of purchase from NRIs, tax has to be deducted at source under section 195 irrespective of the amount of sales consideration.