CREDAI submits suggestions on Union Budget 2010-11

.....

CREDAI is the apex body of the organized real estate developers/builders across India.

"The real estate industry contributes significantly to the country's GDP, and hence, when the issue of sustaining the GDP growth is expected to gain significance in this Union budget, CREDAI's suggestions and recommendations can play a crucial role in shaping up the country's future economic growth; provided the sector is supported by favourable policies from the government," said a CREDAI spokesperson.

One should also consider that the real estate sector is the second largest employer in India, providing employment to almost 20 million people and supporting more than 250 affiliate industries. Hence, it is imperative that the Ministry considers CREDAI recommendations while devising the country's economic roadmap, the spokesperson added.

Some of the recommendations made by CREDAI are:

· Recent amendments in Section 56(2) of Income Tax Act put an additional financial burden on the end users in view of the taxation on capital gains. After 2009, this act levies capital gains tax on the property buyer calculated on the difference between the purchase price and the value determined by the registrar at the time of registration for the purpose of stamp duty. In view of this additional financial burden on the end users and its impact on purchasing power, CREDAI has recommended that the section 56(2) of the Act should not be made applicable to the transfer of immovable property. This would provide a fair amount of relief to the consumers.

· Presently the limit specified for deduction for repayment of principal amount of a home loan as available under Section 80C for self occupied residential property is upto Rs. 1 lakh. CREDAI has recommended an additional limit of up to Rs. 2 lakhs for the same. Increasing the threshold limit for the deduction would provide relief to the middle class, besides increasing disposable income in their hands.

· Due to end use restrictions, proceeds from External Commercial Borrowings (ECBs) are not allowed to be used for real estate activities presently. And alternate sources of construction finance from banks and financial institutions are extremely restricted. Hence CREDAI has suggested ECBs to be permitted for funding construction costs of at least those real estate projects which qualify for 100pc FDI. ECBs being an alternative source of low cost borrowings for the developers will help them to optimize cost. The savings in cost thus made, can be passed on to the end consumers by way of price reduction.

· New Industrial Park Scheme, 2008 was notified by the Central Government on 8 January 2008, for parks that began to develop, develop and operate, or maintain and operate during the period of 1 April 2006 to 31 March 2009. During the interim period, there was no notification as the IPS 2002 came to an end on 31 March 2006 and the IPS 2008 was only notified on 8 January 2008. CREDAI has recommended that thetime limit for notification of Industrial Parks be extended to 31st March 2015. Also, that all pending applications filed under the Industrial Park 2002 scheme should be approved expeditiously. Further at present, the minimum number of industrial units required for an Industrial Park to qualify is 30. CREDAI has suggested that this number be reduced to 10 owing to the fact that large areas are occupied by individual industrial companies.

· Tax stimulus was continuously provided to the real estate sector by providing a tax holiday to lower income group (LIG) / middle income group (MIG) housing projects under Section 80-IB (10) of the Act. Prior to the Finance Act 2009, tax holiday under section 80-IB (10) of the Act, tax holiday was available for housing projects approved prior to 31 March 2007 which was extended to 31 March 2008 only in the last budget. The tax holiday was available to housing units of up to 1000 square feet in Delhi and Mumbai and up to 1500 square feet in other cities. Since high land and construction costs driven by input costs make affordable housing unviable in the vicinity of developed cities, CREDAI has suggested extension of Tax Holiday for housing projects under Section 80 IB (10) to allow for conceptualizing of new projects while also encouraging more projects to come up in view of the incentive.

· Infrastructure status has been recommended for integrated townships as such projects have a long gestation period and require significant investments. Thus, they should be given incentives at par with infrastructure. A single window clearance system for integrated townships has also been recommended to expedite the process as 30-40 approvals are required for such projects.

· For all slum / dilapidated housing redevelopment projects, tax incentives have been recommended to achieve the objective of the government and to boost the economy. In this view, restriction can be imposed on the maximum area of new units developed so that the tax exemption is enjoyed only by developers who are keen on improving the social infrastructure.

· CREDAI has also suggested that Service Tax should not be levied on renting of immovable property as it does not qualify as 'goods' and hence is not covered under the ambit of GST/Service Tax.

Kumar Gera, Chairman, CREDAI, said, "There is a massive housing requirement in the country, which if addressed, can act as a stimulator for employment as well as for improving India's GDP. Alternatively, if unaddressed, it will lead to negative results. CREDAI has always championed the cause of the real estate effort in India.

"All the recommendations put forth by us will help in bringing about more transparency and simplicity to the processes, while at the same time; they will address needs of various stakeholders from the developer to the end user. CREDAI's suggestions have always kept in mind revenue to the Government. Our suggestions, if accepted can be a win-win for all."

Santosh Rungta, President, CREDAI, commented, "The thrust of our recommendations have been 'Affordable Housing'."

"We have recommended incentives which would be beneficial to both home buyers as well as developers. The recommendations relating to amendments in the Income Tax Act on income from other sources, extension on limit of deduction for repayment of principal amount of a home loan, tax benefits on slum redevelopment projects and external commercial borrowings in real estate will be of considerable help to the home buyers and also help in developing the sector subsequently. These incentives shall increase the supply of housing at affordable prices," Rungta said.