Affordable housing gets a boost, many other gains for real estate in Budget ’21

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A big boost to affordable housing is among the top takeaways of the Union Budget 2021-22 presented by Finance Minister Nirmala Sitharaman in Parliament on February 1.

Besides, tax deduction on home loan interest, debt financing for REITs and InvITs and boost to infrastructure are the other major gains for the real estate sector.

The Ministry of Housing and Urban Affairs has been allocated Rs 54,581 crore in the Budget, which has been largely welcomed by experts, realtors’ bodies and top players of the industry.

There are a few misses as well for the sector and expectations that have not been met. Developers were hoping for industry status to real estate, Input-Tax Credit benefit and measures that can help them complete stuck projects, but the Budget is silent on all these.

While presenting the Budget, the FM said, “This Government sees ‘Housing for All‘ and affordable housing as priority areas. In the July 2019 Budget, I provided an additional deduction of interest, amounting to Rs 1.5 lakh, for loan taken to purchase an affordable house. I propose to extend the eligibility of this deduction by one more year, to March 31 2022. The additional deduction of Rs 1.5 lakh shall therefore be available for loans taken up till March 31, 2022, for the purchase of an affordable house.”

Besides this, she also announced that to ensure supply of affordable houses, projects in this sector can avail a tax holiday for one more year i.e. till March 31, 2022.

The Budget also addresses another important problem in the real estate industry i.e. housing for migrant workers. To promote the supply of affordable rental housing for migrant workers, Sitharaman has proposed to allow tax exemption for notified ‘Affordable Rental Housing Projects’.

Acknowledging the long-term debt financing need for infrastructure, the Finance Minister proposed introduction of a Bill to set up a professionally-managed Development Financial Institution. The DFI, she said, will act as a provider, enabler and catalyst for infrastructure financing, she said.

“I have provided a sum of Rs 20,000 crore to capitalise this institution. The ambition is to have a lending portfolio of at least Rs 5 lakh crore for this DFI in three years,” she added.

The FM also announced nearly 217 projects worth over Rs 1 lakh crore to be completed under the National Infrastructure Pipeline. “The National Infrastructure Pipeline (NIP) which I announced in December 2019 is the first-of-its-kind, whole-of-Government exercise ever undertaken by the Government of India. The NIP was launched with 6,835 projects; the project pipeline has now expanded to 7,400 projects. Around 217 projects worth Rs 1.10 lakh crores under some key infrastructure ministries have been completed,” she said.

The Union Budget 2021 also had some provisions for construction workers. “To further extend our efforts towards the unorganised labour force migrant workers particularly, I propose to launch a portal that will collect relevant information on gig, building, and construction workers among others. This will help formulate health, housing, skill, insurance, credit, and food schemes for migrant workers,” said Sitharaman.

The Budget 2021 has also provided the highest-ever allocation – Rs 1,18,101 crore for NHAI.  “I am also providing an enhanced outlay of Rs 1,18,101 lakh crore for Ministry of Road Transport and Highways, of which Rs 1,08,230 crores is for capital, the highest ever,” the FM said.

She also proposed to make dividend payment to Real Estate Infrastructure Trusts or Infrastructure Investment Trusts (REIT/ InvIT) exempt from TDS.

“Debt Financing of InVITs and REITs by Foreign Portfolio Investors will be enabled by making suitable amendments in the relevant legislations. This will further ease access of finance to InVITS and REITs thus augmenting funds for infrastructure and real estate sectors,” she said.

In the previous Budget, the Government had abolished the Dividend Distribution Tax (DDT) in order to incentivise investment. Dividend was made taxable in the hands of shareholders. Now, in order to provide ease of compliance, Sitharaman has proposed to make dividend payment to REIT/ InvIT exempt from TDS.

Further, as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax, the minister proposed to provide that advance tax liability on dividend income shall arise only after the declaration/payment of dividend.

Also, for Foreign Portfolio Investors, FM proposed to enable deduction of tax on dividend income at lower treaty rate.