Budget ’08: Industry Analysis

Everyone has expectations from the Budget and it is reasonable to accept that the Finance Minister cannot please everyone. The Budget speech reflects the absence of any significant tax changes impacting the real estate sector.

It was widely anticipated that the Finance Minister will clarify taxation aspects in relation to Real Estate Investment Trusts, or REITs, which Sebi plans to introduce and which could have provided a much sought fillip to the sector.

However, the Finance Bill does not make any mention about REITs. It was also expected in some quarters that the Finance Minister may reintroduce the tax holiday available to real estate developers from construction of specified types of dwelling units (80-IB). Given the Finance Minister’s aversion to tax exemptions, the expectations only remained so.

On the positive side, construction of hospitals and hotels in specified districts having world heritage sites may get a boost considering the 5 year tax exemption (one of the far and few) granted by the Finance Minister.

The Finance Minister had, in his speech, mentioned about amending the law to provide clarity on taxation of reverse mortgages, which would not be regarded as a “transfer”. The Finance Bill seeks to amend the provisions of the law and provide:-

(i) “Transfer” excludes transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government and
(ii) Steams of payment received by an individual as a loan in a transaction of reverse mortgage will not be included as his income. Thus, one will have to wait till the scheme is notified to understand the nuances of the exemption.

The real estate sector can hope to indirectly benefit from rationalization of slab rates for individuals, which will result in lower tax outflows thereby enhancing their appetite for home loans.

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