Builders Pay No Tax For 300 Sq Ft Flats In Metros, 600 Sq Ft In Non-MetrosIt’s a mixed bag for the real estate sector. The biggest bonanza is for Real Estate Investment Trusts (REITS) which are now exempt from paying the 17% dividend distribution tax (DDT) when they hand out dividends to investors.
Jaitley announced total tax exemption on profits for developers who build small flats. The Centre also announced service tax exemption for construction of affordable housing under state and central housing schemes. Builders will enjoy 100% tax exemption on profits if they build apartments up to 300 sq ft in size in the four major metro cities and up to 600 sq ft in the non-metros. These flats have to be built starting June 2016 and completed by March 2019.
“This will give much-needed impetus to develop a greater number of affordable housing projects across the country, thus, directly aligning the agenda with the Prime Minister’s vision of ‘Housing for All’,” said Abhishek Lodha, MD, Lodha Group.
Dharmesh Jain, president of MCHI-CREDAI, said, “We are yet to read the fine print, but at this point in time, we are very excited about tax exemptions for affordable housing.“
But developer Niranjan Hiranandani said the earlier NDA government had given tax exemptions on flats up to 1,000 sq ft in Mumbai and 1,500 sq ft in other areas. “It’s unfair to reduce the size to 300 sq ft and 600 sq ft,” he said.
Sanjay Dutt, MD-India, Cushman & Wakefield, said the caveat of hous ing space limits (300 sq ft in four metro cities and 600 sq ft in other tier II cities) should have been equitable. “The three-year window for project completion could also have been for a longer duration as approvals and construction typically take a long time,” he added.
Property expert Pranay Vakil of Praron Consultancy said developers building smaller flats will still have to pay the Minimum Alternate Tax (MAT) of 18% on their book profit.
“This will negate some of the benefits offered in the budget,” said Vakil.
However, sceptics warned that many builders in the past have cheated government housing authorities by amalgamating two or four smallsized flats and selling them as one big unit. The scrapping of the dividend distribution tax (DDT) which was paid by Real Estate Investment Trusts (REITs) has been the biggest takeaway for the industry. “This was the last-mile connectivity remaining for REITs,’’ said Hiranandani. “In the next 18 months, I expect up to $ 20 billion flowing into India by this route,” he added.