It is essential that the upcoming Union Budget 2016-17 creates a uniform set of rules for the e-commerce industry in India. This will help remove ambiguity that is currently hindering efficiency and bolster the growth of the sector.
The key takeaways of Budget 2015-16 for the real estate sector were the big moves on infrastructure development, a definitive time line for the introduction of GST, a progressive reduction of corporate tax rates to 25 per cent and the amended taxation framework for Real Estate Investment Trusts (REITs). As the real estate sector gradually emerges from a prolonged slowdown, the industry is hopeful of individual and industrial policies that will aid its speedy recovery.
Granting industry status to the real estate industry has been a demand from the developer community as the segment provides the infrastructure requirement like building and community space for various economic activities. Key expectations from the Union Budget 2016-17 are-
· Remove the DDT restriction in REITs
While the Finance Minister proposed rationalisation in the capital gains regime for REITs, clarity in terms of directives will further strengthen this initiative. There are several REITs that are ready to launch in India, but it wouldn’t be lucrative for developers & asset holders to commence operations in the presence of the Dividend Distribution Tax (DDT). The revival of the real estate sector is dependent on the removal of the DDT on REITs.
Logistics, Warehousing & Industrial
· Transparency on GST implementation
The date for implementation of GST ought to be announced during the Union Budget 2016-17. This vital reform will provide the industry with much required clarity in the taxation structure and lead to a paradigm shift in the logistics architecture in our country.
· Uniform set of rules for e-Commerce
While the Indian e-Commerce industry boom has made global headlines, start up firms still suffer the lack of investor confidence. This is chiefly owing to the lack of a single definition for a start up firm adopted across the country, hence each state imposes a different set of laws to govern the functionality of this sector. A single definition will remove ambiguity that is currently hindering efficiency and bolster the growth of the e-Commerce industry.
· Make provision for infrastructure development in the outskirts of metros
While the last budget prioritised affordable housing, there was no mention on the connectivity to the remote peripheries of a city where these large scale housing projects were being developed. These areas lack both social & physical infrastructure and viable commuting facilities. The Union Budget 2016-17 should allocate funds or allow easy financing options to the developers planning projects in this residential category.
· Avail healthy tax saving on housing loans & encourage property insurance premiums
Tax Benefits on principal repayment & interest repayment on home loans allow high tax deductions. Given the high property prices in metropolitan cities like Mumbai, Bangalore, etc; the government should pay head to scaling up the tax deduction limit on housing loans. Further, the tax exemption limit should be increased and the tax benefits on schemes encouraging end user to insure their homes could be encouraged.
· Offer financial protection from project delays to home buyers
Since the last budget, there is a marked increase in budget & mid-segment-large scale projects across cities. However, these large scale residential projects require at least 3/5 years for completion and the end users here are sensitive to pricing and in case of delayed timelines, they are liable to account for rent as well as EMIs. The Union Budget 2016-17 ought to facilitate monetary benefits on housing loan from the start date instead of allowing tax benefits post possession to first time home buyers. This will hike the velocity of home loan disbursements. Moreover, if an under-construction property is purchased from capital gains, its construction must be completed within three years of its sale to avail exemption. These deductions should be brought at par and the construction timeline should be extended from the current three years to five years.
Author’s Note: Shrinivas Rao, a founding member of Vestian Global Workplace Services, is responsible for Vestian's growth and expansion in Asia Pacific. With over 23 years of experience in global real estate industry, Shrinivas has assisted various multinational corporations with portfolio planning, strategic consulting, expansion/ relocation and project delivery in order to achieve their real estate goals in key Asian markets.