Budget 2011: Extend a helping hand to the realty sector that employs many


(published on The Economic Times website, February 24, 2011)

As the nation awaits the Budget for FY 2011-2012, the real estate sector is eagerly looking forward to certain reforms and amenities that will help spiral its much needed growth. The existing Taxation laws have room and scope for much improvement. By considering these incentives for the sector, the government will be adding a well needed boost to a sector that has given much to the nation in the form of employment, infrastructure and shelter, but has not got much in return so far.

Apart from tax incentives, there are other factors that the government should consider for the real estate sector. The first related to the amount of interest on housing loans that is exempted from tax. The current rules allow 1.5 lakh rupees exemption, this should be raised to 3 lakh rupees to make house buyers feel less of the taxation heat. Real estate is also plagued by being levied both sales tax and service tax. This anomaly should be abolished and a single tax should be levied instead. It should be an either/or situation and not a both situation.

Another area for exploration could be the current LTCG (Long term capital gains) tax on real estate. Currently, the LTCG tax on residential properties is exempted if the property has been held for more than 3 years and if the proceeds are re-invested in another residential property within one year of sale of that property or re-invested into Capital Gains Bonds which are recognized by the government. However, the government could consider that if a property has been held for more than five years, then the LTCG could be fully exempted. This would encourage the real estate sector because it would create a more attractive atmosphere for people to purchase property. The benefit of such LTCG changes could be extended to commercial properties as well and should also be expanded to include companies into the LTCG exemption on property ambit.

Real Estate should finally get the much desired industry status as so far it is one of the major contributors in terms of employment generation and also accounts for over 5% of the nation’s GDP. Once industry status is conferred, real estate can be regulated and organised in a better fashion. It is imperative that this is done. Housing projects (integrated townships and group housings) should get infrastructure status as they provide a backbone for the further growth of the nation.

The age old saying of “roti, kapda and makaan” itself indicates the primary importance of the real estate sector in the wellbeing of humanity. The real estate sector is the backbone on which the nation will be developed into becoming a major player of the 21st century. It needs to be awarded industry status recognition and should also be given certain tax benefits and should be given the due respect that it deserves. Hopefully, in this current budget, the hon’ble Finance Minister will listen to the cries of real estate developers and extend a helpful hand.

(The author is Joint Managing Director of Chintels India Limited, a New Delhi-based real estate development company. Views are personal.)

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