Residential real estate to benefit from home loan subsidies and GST rates

Understanding the annual financial budget with all its changes is vital especially if it helps you save a substantial amount of money. The Finance Ministry has most definitely made history but let us look at some of the finer points with regard to the residential real estate sector.

An additional ₹1.5 lakh savings per year

When buying a home, we need to keep in mind that the budget 2019 has added a number of tax benefits when it comes to residential real estates. As the government works towards the “housing for all” by 2022, our finance minister proposed an additional tax benefit of ₹ 1.5 lakhs on home loans taken in order to purchase an affordable house up to the value of ₹ 45 lakhs. With previous budget deductions under section 24(b) which provided benefits up to ₹ 2 lakhs, the overall tax benefits for home loans taken on affordable housing has increased to ₹ 3.5 lakhs. For the industry, this move hopes to increase property sales by encouraging people to invest their earnings into a new home.

Side notes:

This is an additional step to ensure property security to give the borrower benefits of invested equity in case the market price of the property reduces.

This new tax benefit is available on home loans taken from a bank. The benefits are thus only valid up to 85% of the home loan, setting aside the margin money. Therefore, even though the price of the property may be around ₹45 Lakhs, the maximum home loan eligibility from the lender is ₹ 38.25 lakh.

This benefit looks great, though the reality is that with reduced lending rates the amount received in tax benefits will be less than ₹3.5 lakhs and further reduced yearly.

1. Attention to housing for all by 2022

So, you have the money, where do you invest it?

Adding focus to their target of ‘Housing for all by 2022’, the government through the Pradhan Mantri Awas Yojana (PMAY) has sanctioned around 81 lakh houses in the PMAY scheme in the urban area and another 1.95 crore homes that are in the process of construction under the PMAY in the rural area. With the newly added exemption, ₹ 3.5 lakhs in income tax on home loans under affordable housing in this budget will work with a broader segment of home buyers and indirectly increase demand of residential real estates.

‘More savings means more investments’.

2. Reducing corporate tax

With a 25% cut in corporate tax on companies with turnovers more than ₹ 400 crores, the government remained mindful that such a cut would help the economy grow. 

3. Benefits for non-banking financial institutions

The budget outlined measures especially for the revival of NBFC. Because of the ongoing debt crisis and liquidity crunch, a one-time, 6 – month credit guarantee for the purchase of pooled assets. This includes only highly rated NBFCs and up to ₹ 1 lakh crore.

This nudge from the government will help with the revival of lending activity and also provide a sustained flow of capital. A much-needed boost to the liquidity of NBFCs by the government allows FIIs and FPIs to invest in debt papers of NBFCs.

4. Reduced GST rates as per the GST Council

In March, the GST council propelled the real estate players to adopt 5% GST for residential buildings and 1% GST for affordable housing without any benefits of input tax credit (ITC). This move has helped boost the residential real estate sector, offering buyers a cleaner and more pleasing set of numbers when they purchase their new homes.

Other benefits for the residential real estate sector:

1. The development of infrastructure

The Finance Minister stated that an investment of ₹100 lakh crores in infrastructure over the next 5 years will help improve connectivity throughout the country, with better roads, metros, railways and airports on the line; the proposal of ‘One Nation- One Grid’ will help in new residential projects in all major metropolitan cities around the country in improving the residential real estate sector.

2. Development of skills in the residential real estate sector and others

It is important for real estate agents and brokers to have a vivid understanding of the schemes, projects and benefits that the government has developed for the growth of the sector. The vision is to train a total of 10 million young employees in the industry-oriented training. Acquiring skill sets in AI, big data, VR, 3-D printing, etc, will not just add meaning to the life of the youth but also to the growth of the country and will give them the salary to invest in the residential real estate sector.

For more details on how you can get started on your down payment, contact HomeCapital