Why this year’s Bud­get must give clar­ity on tax pro­vi­sions

Tax norms re­lated to af­ford­able hous­ing projects, es­pe­cially MAT, must be sim­pli­fied

Hindustan Times (Chandigarh) - Estates - - HT ESTATES - Ab­hishek Goenka ht­es­tates@hin­dus­tan­times.com ■ The au­thor is part­ner – real es­tate, PwC.

The last three bud­gets saw the gov­ern­ment deal­ing with and ad­dress­ing legacy is­sues. Given the re­cent sig­nif­i­cant moves by the gov­ern­ment around the Goods and Ser­vices Tax (GST) and de­mon­eti­sa­tion, the up­com­ing Bud­get will largely fo­cus on driv­ing its vi­sion of Trans­form In­dia. In this con­text, some of the ex­pec­ta­tions from the Bud­get 2017 include:

Con­fer­ring in­dus­try sta­tus to the real es­tate sec­tor: The gov­ern­ment should pro­vide much-needed re­lief to the real es­tate sec­tor by giv­ing it a for­mal in­dus­try sta­tus. This will not only be ben­e­fi­cial for the sec­tor, but also will ben­e­fit its al­lied sec­tors. The de­mand for this sta­tus has been un­ap­peased

for a while and has the po­ten­tial to ease many of the hur­dles cur­rently faced by the in­dus­try.

Clar­ity on tax pro­vi­sions re­lat­ing to af­ford­able hous­ing projects: While the gov­ern­ment cur­rently pro­vides a 100% de­duc­tion for the prof­its re­ceived by a tax payer who de­vel­ops and builds af­ford­able hous­ing projects un­der the nor­mal pro­vi­sions of the In­come-tax Act, the Min­i­mum Al­ter­na­tive Tax (MAT) li­a­bil­ity may still arise. The hope is that Bud­get 2017 will clar­ify this is­sue, which seems to be the pri­mary rea­son for this ini­tia­tive not be­com­ing a re­al­ity.

The con­di­tion of com­plet­ing the project within a pe­riod of three years from the date of ap­proval seems un­re­al­is­tic. It will pose chal­lenges for de­vel­op­ers at­tempt­ing to make use of this in­cen­tive. As an al­ter­na­tive, a time­line of five years for com­ple­tion of the project would be more fea­si­ble.

Con­cerns re­lated to phas­ing out of tax ex­emp­tions/ in­cen­tives: De­vel­op­ers and oc­cu­piers of Spe­cial Eco­nomic Zones are hop­ing for a roll­back of the in­ser­tion of the sun­set clause. They fear that, go­ing for­ward, the move to phase out

ex­emp­tions/in­cen­tives may dampen in­vest­ment sen­ti­ments and hit ex­port vol­umes.

Re­duc­tion of hold­ing pe­riod of REIT/In­vIT units to qual­ify as long term cap­i­tal as­sets: The pri­mary aim of Real Es­tate In­vest­ment Trust (REIT)/ In­fra­struc­ture In­vest­ment Trust (In­vIT) units is to im­prove liq­uid­ity by en­cour­ag­ing small sav­ings in the real es­tate and in­fra­struc­ture sec­tor. The ex­ist­ing hold­ing pe­riod of 36 months for REIT/ In­vIT units to qual­ify as long term cap­i­tal as­sets is very long and can dis­cour­age in­vestors. There­fore, the gov­ern­ment should con­sider re­duc­ing that pe­riod to 12 months in­stead, as is the case with eq­uity shares.

Clar­ity re­gard­ing tax­a­bil­ity of rental in­come: There should be ap­pro­pri­ate guid­ance for de­ter­mi­na­tion of the head un­der which rental in­come should be taxed, that is, whether it should be taxed un­der In­come from House Prop­erty (IHP) or Prof­its and Gains of Busi­ness or Pro­fes­sion (PGBP). In this re­gard, the gov­ern­ment could re­fer to the Supreme Court de­ci­sion on the topic, wherein they held that if the main ob­ject of the en­tity is to ac­quire and hold prop­er­ties for let­ting out, the rental in­come re­ceived from let­ting out of such prop­er­ties should be taxed un­der the head PGBP and not IHP. This will bring cer­tainty and clar­ity on the mat­ter and re­duce lit­i­ga­tion.

The re­cent de­ci­sions taken by the gov­ern­ment to trans­form the In­dian econ­omy have seen many changes be­ing brought in par­tic­u­larly for the real es­tate sec­tor, and the re­lax­ation of the FDI rules was the most no­table of th­ese changes. While the dust is still set­tling around th­ese moves, Bud­get 2017 will be keenly awaited.


A time­line of five years for com­ple­tion of hous­ing projects would be more fea­si­ble, say ex­perts.

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