Union Budget 2021-22: Dividend Payments to REITs Exempted from TDS

Top 5 Misses of the Union Budget 2021

In the aftermath of the pandemic, the Union Budget 2021 was highly anticipated to fuel economic revival. It was to be a balancing act between high expectations and minimal resources. Some of the key aspects that were included in this Budget were affordable housing, tax deduction on home loan interest, debt financing for REITs and InvITs, and a boost to infrastructure

All of this is, undoubtedly, expected to yield the largest gains for the real estate sector. The affordable housing initiatives are a positive step for the recovery of the real estate sector. The availability of affordable housing is critical to the real estate sector’s revival in 2021. 

While the Budget did address many aspects, here are the top five demands that the Budget should have considered: 

Infrastructure status: The granting of infrastructure status to the entire real estate sector is at the forefront of expectations and was disappointingly absent from the Budget. 

Infrastructure status allows financing to be available to the developer at lower interest rates. In turn, this would make all projects more affordable for homebuyers. Furthermore, we have seen the impact of infrastructure status on affordable housing with many reputed developers now launching projects in the affordable segment.

Single-window clearance: Project approvals can take up to a year or more, which cause project delays and directly impact the rate of return. Union Budget 2021 should have implemented single-window clearance to streamline this process. This will ensure project approvals to be processed more quickly, resulting in reduced construction costs, thereby substantially reducing property costs.

Input tax credits: The current GST structure for the real estate sector is inefficient and could perform better if streamlined across the sector. Bringing back the input tax credit (ITC) during the construction phase would be a positive step for the commercial real estate segment wherein GST must be paid on rental income as well as for input materials during construction. Without ITC, there is effectively a dual tax levy. 

Revised income tax slabs: Unfortunately, there was no change in income tax slab rates. The real estate sector would benefit from revised income tax slabs that reduce overall tax expenditure and increase disposable income. This will enhance the ability of the salaried class to invest in real estate.

Implementation of emergency funds: The government must act on its previous proposal to provide funds for stalled real estate projects, especially in light of the pandemic. These emergency funds should be increased in size and scope and implemented at the earliest to relieve the real estate sector, which has been struggling with the completion of projects due to an acute liquidity crunch. 

While the stage is all set for long-term economic growth, critical relief measures should be implemented immediately to mitigate the effects of the downturn and bolster the sector. Initiatives that help improve liquidity and facilitate credit flow would allow developers to focus on high-priority operations. It will also help ease the anxiety of homebuyers, and ensure the completion of projects in a timely and compliant manner.

Taking a long term view of 2021, the real estate market is expected to fully regain its pre-Covid momentum in the first half of 2021. The key drivers for recovery will work towards supporting developer operations and boosting consumer sentiment. Overall, the real estate sector requires supportive measures, which will improve the recently gained momentum and create more stability overall.

This article is contributed by  Rakesh Reddy, Director, Aparna Constructions & Estates.

(The views expressed here are solely those of the author and do not necessarily represent or reflect the views of RoofandFloor)

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