Real Estate: The biggest announcement in Budget 2016 with implications for the real estate sector in India was removal of DDT from Real Estate Investment Trusts (REITs).
While three of the real estate sector’s major expectations – increased HRA deduction, removal of DDT from REITs and boost to affordable housing by allowing 100 per cent deduction on profits made by entities constructing them – have been addressed, the Budget offered no financial protection from project delays to home buyers.
Most first-time home buyers in the major metros will be left out of the additional Rs 50,000 tax exemption announced today, as it is applicable only on houses worth up to Rs 50 lakh with loans of up to Rs 35 lakh for houses. This announcement will mostly benefit first-time home buyers in tier-III and tier-II cities. The infrastructure sector was a major beneficiary today.
Retail sector: The revamp of the Model Shops & Establishment Act is a welcome move and could help the retail sector considerably. Unorganised retail could receive a fillip as smaller shops will now also be given the option of remaining open for all seven days of the week, like organised malls. While this will make the high street retail real estate proposition a bit more attractive, we will have to wait and see the implications from a labour market perspective.
REITs could become a reality soon: The realty sector has much to cheer about from the Union budget. Finance minister Arun Jaitley has removed the last significant tax hurdle in the way of Real Estate Investment Trusts (REIT), given incentives to first-time home buyers and tried to make affordable housing more viable.
The budget left out REITs—listed entities that primarily invest in leased office and retail assets, allowing developers to raise funds by selling completed buildings to investors and listing them as a trust—from the purview of dividend distribution tax (DDT).
In the last two budgets, the government has eased the path for REIT listing in India by providing pass-through status for rental income and rationalizing capital gains for the sponsors exiting at the time of listing of the units of REITs, subject to payment of securities transaction tax (STT).
But most developers and investors didn’t go ahead with their REIT plans due to the tax implications.
From the speech of the finance minister, one of the most-awaited exemption of Dividend Distribution Tax on the dividend declared by the portfolio company to REIT and InvIT has been proposed. With this amendment, all the required fiscal support for REIT and InvIT to make it a reality has been done. This will support the developer and fund managers to raise funds through REIT/InvIT and create liquidity.