CREDAI’s recommendations for Pre-Budget Memorandum on Direct Taxes for Union Budget 2024 - 25

CREDAI's recommendations for Pre-Budget Memorandum on Direct Taxes for Union Budget 2024 - 25

S. Sridharan, Vice President – South, CREDAI National

The real estate sector in India remains a cornerstone of economic development, marked by robust year-on-year growth from $250 billion in 2022 to $297 billion in 2023. This expansion not only creates employment opportunities but also boosts infrastructure development and catalyzes growth for allied industries such as construction and building materials. With substantial investments pouring in from both domestic and international investors, implementing strategic policy reforms becomes imperative to sustain this upward trajectory and elevate living standards across the nation.

CREDAI submitted various recommendations that are crucial in sustaining the demand for residential properties across segments. We put forth several additional recommendations aimed at fostering growth and affordability, emphasizing the importance of measures such as reduced stamp duty, streamlined approval processes, and subsidies for developers investing in affordable housing projects.

Key suggestions have been put forth to address pressing issues facing the sector:

Introducing Credit Guarantee Scheme: The government may consider introducing a Credit Guarantee scheme for Housing loan up to Rs 40 lac (80% - 90% of value of Affordable house as per the definition) and home improvement loans of up to Rs 20 lac. This move will boost the home loans portfolio amongst low-income groups of the population and with Housing Loan being one of the safest loan portfolios in the Banking Industry there is a minimum risk of default by borrowers. Also, the underlying asset i.e. home is a value appreciating asset, hence, the loan will be fully secured.

Affordable Housing Definition: The current definition, set at Rs 45 lakhs since 2017, has become impractical due to significant inflation in real estate prices over the past seven years. Data from the National Housing Bank reveals a 24% increase in housing rates in India since June 2018 alone, underscoring the need for revision. The real estate industry advocates for a re-evaluation that reflects current market realities, ensuring adequate availability of affordable housing units to meet current and future demands.

Credit Link Subsidy Scheme

Around 2/3rd of India's population is under the age of 40 years and a substantial portion of this population is poised to become 1st time home buyers. As India celebrates "Amrit Kaal" a separate booster for the young population is needed to fulfil their dream home purchase.

Under the CLSS scheme, the person falling under two income groups of MIG-1 or MIG-2 is eligible to get interest subsidy @ 4% or 3% of the Loan amount (Limit defined as per Government notification). However, the benefit is now withdrawn as this was valid till a particular date only.  A special CLSS scheme under PMAY for Youth (below the age of 40 years) may be introduced with a validity till 1st December 2024.

Interest Deduction for Home Buyers: To stimulate homebuying, Finance Ministry should consider allowing unlimited interest deductions for the first self-occupied property or increasing the deduction limit to INR 5,00,000 aims to boost real estate investments and spur demand, benefiting the overall market with multiplier effects

Long Term Capital Gains: Suggestions include reducing the long-term capital gains tax rate to 10% and reducing the holding period for eligibility to 12 months. Additionally, proposals advocate for exempting capital gains on the sale of residential property if 50% of the sale proceeds are reinvested in multiple residential properties. Currently, these gains are taxed at 20% with a 24-month holding period requirement.

Employment generation & Skilling

Real Estate sector can create wage-based employment opportunities in large volumes in a short period of time and with minimal support from the Government. The only bottleneck to this, otherwise, win -win situation for all stakeholders is the lack of skilled workforce at entry and mid-level job roles of the construction sector. It is estimated that every year 3 million new people enter the construction and real estate sector and there is an ever-growing need for skilling of this workforce. Government must allocate funds under Pradhan Mantri Kaushal Vikas Yojana for skilling in the construction sector and allow industry bodies to certify the skilled workforce.

Developers pay a cess of 1% of the project cost to the state Building and Other Construction Worker boards which translates into 100's of crores every year. I urge the BoCW boards to use this unutilised fund for workers welfare through education, skilling and accidental insurance coverage for the workers and his / her family. It would also be worth a try to allow the developers to utilise this fund directly instead of the BoCW board.

Urban Infrastructure Development Fund

Hon'ble FM announced a proposal to create an Urban Infrastructure Development Fund during her speech for the 2023-24 budget, the Finance Minister said that this fund will be used by public agencies to create urban infrastructure in Tier 2 & Tier 3 cities. This fund will be crucial for the development and transformation of these cities into sustainable cities of tomorrow through various urban planning reforms and actions.

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