- Wealth PMS
Ramifications of a budget are beyond taxes. But usually, the real estate fellows desire and get a little bit of an exemption here and there. Not this time, it seems. Here’s two limiting items in the Budget.
When you pay interest on a home loan, that interest is tax-deductible upto Rs. 150,000 on your primary residence. That means you can reduce this much from your income if you’ve paid it as interest. This is quite inadequate in most cities, where even a matchbox costs more than 50 lakh. A loan of Rs. 40 lakh at 10% would give you an interest payment of nearly Rs. 400,000. Obviously this is much greater than the 1.5 lakh exemption.
The FM has introduced a higher exemption. Another Rs. 1 lakh is exempted, when paid as interest. However, there are restrictions:
This means that effectively, you can’t even transfer an existing loan to avail of this exemption. (There is a wild exemption: if you have a house that qualifies in points 2 and 3 above, but it hasn’t yet been completed, you might be able to transfer the loan to a new bank and meet the conditions above)
Unfortunately the numbers don’t add up. Even if you consider a loan of Rs. 25 lakhs, you will just about pay Rs. 2.5 lakh in interest at a loan cost of 10%. But since such loans get a better deal from banks (who get a better deal from RBI in terms of capital allocation for such loans), and also because interest rates might come down, the limit of Rs. 2.5 lakh may not be fully utilized.
(For such a case, you can use the “unutilized” amount in the subsequent year, but that’s only the differential amount.)
This isn’t so great for builders because the cost of land and construction in most cities exceeds the Rs. 40 lakh limit in most cases. However, there are economical projects in the outskirts that should benefit.
The memorandum says this:
At present taxable portion for service tax purpose is prescribed as 25% uniformly for constructions where value of land is included in the amount charged from the service recipient. This is being rationalized. Accordingly, where the carpet area of residential unit is upto 2000 square feet. or the amount charged is less than One Crore Rupees, in the case of ‘construction of complex, building or civil structure, or a part thereof, intended for sale to a buyer, wholly or partly except where the entire consideration is received after issuance of completion certificate by the competent authority’, taxable portion for service tax purpose will remain as 25%; in all other cases taxable portion for service tax purpose will be 30%. This change will come into effect from the 1st day of March, 2013.
This is unnecessarily complicated. It’s like this:
In context, the amount, for a Rs. 2 crore large house, bought directly from a builder, will cost Rs. 1.24 lakh more.
These conditions might be easily skippable for borderline properties (carpet area is usually about 70% of the area you pay for, or less).
Both of the above notes in the budget are not very great for housing companies, but at least for the most part it is status quo.