Union Budget 2024: Real Estate Sector Seeks Industry Status, Reduction In Tax

Union Finance Minister Nirmala Sitharaman will present the interim Budget for the financial year 2024-25 on February 1 in the Lok Sabha. From agriculture, finance, and education, to infrastructure, manufacturing, and realty – several sectors are waiting for the unveiling of the budget landscape.

India’s real estate sector witnessed significant growth in the last few quarters with the increasing demand for commercial and luxury real estate. Ahead of the Union Budget 2024, companies in the real estate sector are expecting the government to reduce taxes, and boost affordability and sustainability of projects.

As the Indian real estate sector grows, it faces some challenges such as taxes reaching up to 28 per cent on construction materials and 18 per cent on the actual construction work.

Hari Kishan Movva, Senior Vice President at SILA says that to stimulate the housing market, it’s crucial to increase the Income Tax Act Section 24’s home loan interest rate rebate from Rs 2 lakh to at least Rs 5 lakh. The adjustment could particularly benefit budget homes, facing a 20 per cent decline in sales in 2023 due to the pandemic.

“Reviving expired incentives, like tax breaks, is imperative for affordable housing. Modify eligibility criteria, considering the Ministry's definition based on income, property size, and price. Adjust the qualifying cost for city properties; for instance, raise the budget to Rs 85 lakh for Mumbai. This ensures broader accessibility and utilization of government subsidies and reduced GST rates,” Movva said.

“Address the land shortage by releasing government-owned lands for affordable housing. Lands owned by entities like Indian Railways could significantly lower real estate prices when allocated specifically,” he added.

There has been a demand for ‘industry status’ in the real estate sector for a long time and it is one of the big expectations from the budget. The industry is a large employer of unskilled and casual labourers so providing industry status would accelerate growth.   

According to Payal Thaker, Partner – Indirect Tax at BDO India, the developers should be allowed to choose between payment of GST at a concessional rate without input tax credit (ITC) or payment of GST at a higher tax rate and availing ITC for residential projects.

“While the Government had appealed against a judgment allowing ITC on the goods and services used for construction of commercial real estate projects (malls or offices etc) which are leased, the industry would look forward to a policy decision to allow the ITC in such cases, since such inputs are clearly used for provision of output supply of leasing,” Thaker added.

The industry is also seeking clarification that various transfers of various land-related rights, such as leasehold rights, transfer of development rights (TDR), and floor space index (FSI) on premium are outside the purview of GST.

This year’s budget is also expected to strengthen the Green Growth Initiative from the previous year and reflect a sustainability-first approach. Arun Awasthy, President & MD at Johnson Controls India believes that strategic investments in sustainable practices can act as a catalyst, propelling India towards decarbonization.

“This requires a more multi-dimensional approach, including greater incentivization of green and smart building practices and certifications, encouraging the adoption of energy-efficient designs, and advancing skilling efforts in green and smart building technologies. As the nation collectively works towards achieving the net-zero target, we are optimistic that the Union Budget will reflect this commitment by widening access to sustainable solutions, enhancing affordability, and convenience for all stakeholders, ensuring a truly inclusive and environmentally responsible future," he said.

In addition to the above, the real estate sector is anticipating several other reforms, including the streamlined single-window system, reduction in GST rates, incentivizing rental housing, stamp duty concessions, and simplification of taxation REIT.

The single window clearance system would help to fast-track project development and improve customer confidence while reducing uncertainties around approvals and litigations. It will also reduce the compliance and approval costs for the developers.