Union Budget 2019 Expectations: Real Estate And Housing Sector

Prologue: As part of our series focusing on the Union Budget 2019, we’ll be highlighting the opinions of industry experts and see what they think and expect from this year’s Budget. In this article, Shrey Aggarwal, an expert on direct tax and litigation matters talks about his Union Budget 2019 expectations. Read on!

I personally believe that the real estate and automobile sectors are going to be affected the most by Budget 2019. Recently, IL&FS was not able to meet its commitments which have obviously impacted the real estate sector, aggravating the present situation of the industry which is already going through a lean phase.

The real estate sector, being the backbone for the any economy and not just the Indian economy, has been particularly affected by its inability to obtain credit from the market. Since providing affordable housing to each individual in the economy is one of the primary goals of any Government, I think the newly elected government will be very keen to elevate the real estate sector through this budget.

Additionally, India has been experiencing an economic slowdown, with not enough jobs being created. The automobile sector has been adversely affected by the decline in sales and revenue, with unit sales reaching an 18-year low. The automobile sector seems to be in a critical stage right now and will need intervention from the government through this budget.

Budget 2019 Expectations In Infrastructure/Real Estate

We need to understand that the infrastructure and real estate sectors rely heavily on capital expenditure. Considering the position of banks and their inability to provide credit in recent years, the government may incentivize External Commercial Borrowings (ECB) type of funding. Currently, there have been some tax cuts. The interest which is paid on ECB is at a concessional rate of 5%, with a sunset clause until 2020, which means the tax cut would not be available post-July 2020. Considering the present scenario, I can foresee the extension of that sunset clause for future exemptions.

Budget 2019 Expectations From GST

I believe there would be major financial boosts to the real estate and infrastructure sectors and a reduction in GST rates. For the under-construction houses, GST has come down from 12% to 5% and for the affordable houses, it has come down from 8% to 1%.

However, that is accompanied without providing any GST input to the real estate sector, which has again affected their margins significantly. As with most other industries, the not-for-profit sector is plagued by the inability to get funds. Despite having the facility of Foreign Contribution (Regulation) Act (FCRA), the Government needs to devise methods to expedite the processes involved, ensuring timely application process.

Expectations From Budget 2019 In Direct Tax Structure

Frankly, I do not think there is much latitude for any high tax rate cuts. With the government not being able to meet its tax targets for FY18-19 and this also being the first budget of the ruling party’s 2nd term, I am not looking forward to any drastic changes.

I am expecting it be a tinkering-on-the-edges budget – lesser tax cuts, minimal political inclination and only a slight increase in the exemption limit given to individuals.

The real-estate sector, however, expects the government to further allow individuals to own any number of houses and getting exemptions on the same, in continuation with the interim budget which allowed individuals to own more than one house and give exemption for those houses under Section 54. However, I don’t foresee that happening because that only widens the ever-increasing gap between the rich and poor.

Budget 2019 – Expectations For the Individual Taxpayer

I am expecting some marginal changes in the basic exemption limit despite being implemented to a certain extent in the interim budget, with an individual earning less than INR 5,00,000 having tax exemption.

I am still hopeful for a marginal increase in the basic exemption limit, increasing from INR 2,50,000 to INR 3,00,000. Changes are also expected in deductions under Section 80C, the limit of which is a meager INR 1,50,000. Usually, an individual taxpayer earning up to INR 1,50,000 is marred by the provident fund, LIC, tuition payment for children, principal repayment for housing loan, etc. which are deducted out of his salary. Therefore, this budget needs to provide concrete benefits to the individual taxpayer.

There are also talks of the introduction of a GST 2.0, making changes to the existing structure of GST. I strongly believe that there is need for an overhaul in the sectors that are consumer-facing in nature, especially the automobile and FMCG industries which are seeing a decline in demand. Similar to the changes in the hotel and restaurant industry where GST was reduced from 12% to 5%, there needs to adequate reduction in GST rates in the automobile and FMCG industries.

However, the government needs to learn from its past experiences and ensure that the benefits of these tax cuts reach the end-consumer. The GST has, often times, been used as leverage by businessmen for their selfish needs and through this budget, they need to devise methods to deliver benefits to the end-consumer and ensure flow of money in the economy.

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