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Media Information
India Budget 2010-11, a mixed bag for real estate sector: NIREM

Published & Updated as on - 2010-03-02

IDS National Institute of Real Estate Management (IDS NIREM) believes that contrary to the popular demand of and expectation for huge impetus to the housing and real estate sector, the India budget 2010-11 has brought a mixed bag for this sector. Though, some benefits have been extended to housing and real estate sector, the burden imposed will definitely undermine the benefits. The burdens and benefits for the real estate sector are as follows:

The burden:

Widening of Service Tax net:

Real Estate Developers will have to pay service tax on transactions where consideration is collected from prospective buyers prior to completion of construction. However, it seems service tax will not be applicable if the full payment is made after completion of the construction.

In addition, other services provided by the builders to prospective buyers such as providing preferential location or external or internal development charges (excluding vehicle-parking space) etc. shall also be covered.

Renting of immovable properties is also under service tax net and the definition of 'renting of immovable property service' has been clarified as well as widened to cover rent of vacant land under contract for undertaking construction of buildings or structures for business purposes. This may have negative effect on to the properties bought or to be bought solely for investment purpose.

Excise Duty on Cement:

Excise duty ion cement has been increased which will increase the cost of construction and it is expected that per unit cost for prospective buyers will also increase.

The benefits:

Some emphasis has been given to promote housing in general such as:

Extension of Interest subvention scheme upto March 31, 2011,

Extension of deadline for completion of pending housing projects by one year without losing tax holiday u/s 80-IB. However, MAT may affect the companies executing such projects.

Extension of 1% interest subsidy on housing loans upto Rs. 10 lakhs and where the cost of the property is under Rs. 20 Lakhs. This along with along with increase in the tax slab rates for individuals should provide the necessary demand boost for low-cost housing.

Relaxation in norms for built-up area of shops and other commercial establishments in such eligible housing projects and

Increased budgetary allocations for urban development and housing schemes.

extension of investment linked deduction benefit to convention centres located in the NCR of Delhi extended from the present 31st March, 2010 to 31st July, 2010 (for purposes of deduction u/s Section 80-ID of the Income-tax Act).

Overall, this budget will have mixed affect on the Indian real estate sector. However, looking at the overall economic scenario, we also need to consider that the budget was presented against mutually conflicting objectives, where-in it is not possible to meet the demands of each individual sector. Another important aspect is that very clearly the Finance Minister took pragmatic approach instead of populist measures, which is a good sign of a growth orientated government.

Source: 27/2/10

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