COLLIERS FLASH UNION BUDGET 2019-2020 | RESEARCH | INDIA | 01 FEBRUARY 2019

HIGHER DISPOSABLE INCOME3 MAY HELP REVIVE

Megha Maan
Senior Associate Director | Research |
THE HOUSING SEGMENT
India Real Estate Opportunities in the 2019-2020 Union Budget
+91 96 6718 8334
megha.maan@colliers.com

Diksha Gulati
Manager | Research | Mumbai
+91 77 0090 1826
diksha.gulati@colliers.com
Summary &
Recommendations
The interim budget empowered the
masses by extending certain full tax
rebates and enhancing deductions,
putting higher disposable income in
the hands of taxpayers. Also the
measures to bridge the rural-urban
divide ensure inclusive job growth
and economic opportunities
benefiting sectors like microfinance,
healthcare and logistics.
In our view, the announcements will
encourage home-buyers on the
fence to make purchase decisions.
We recommend individuals looking
at purchasing property to evaluate
options in order to avail the benefits
of capital gains extension to two
properties.
Among other opportunities in the
budget, we recommend developers
to take advantage of the one year
extension of the 100% profit
deduction for affordable housing
projects.

Source: Colliers International, Interim Budget 2019-2020

Note: 1 lakh = 100,000 and 1 crore = 10,000,000; 1 USD = INR 71.3
COLLIERS FLASH UNION BUDGET 2019-2020 | RESEARCH | INDIA | 01 FEBRUARY 2019

Despite expectations regarding budget specifics from within the real estate
BRIGHT SPOTS IN BUDGET DESPITE industry, only a ew policies will likely help revive the housing sector. The
government provided impetus to the real estate sector by announcing
UNMET EXPECTATIONS specific deductions and exemptions that are planned to increase individual
disposable income. In our opinion, these should encourage sales and help
The current government presented the interim budget before the upcoming the housing sector to revive from the supply glut.
general election in May, after having adopted transformational structural
reforms in the last five years. The Budget calls for the GST council to appoint a group of ministers to make
recommendations on reducing the GST rate for home buyers. In our opinion,
In our opinion, the government focused on multiple goals of: the announcement is a positive step but with no specific timeline around the
> developing infrastructure changes, demand may not be immediate.

> reducing corruption

KEY HIGHLIGHTS OF THE BUDGET
> enhancing economic growth investment
The budget should
result in increased > ease of doing business THAT ARE LIKELY TO INFLUENCE
demand in the
residential market
> and improved investment sentiment.
THE REAL ESTATE SECTOR
The Government’s vision of becoming a USD5 trillion economy in the next
by boosting the
disposable income
five years, along with the ten dimensions of Vision for 2030, including Ease Individual income tax rebate for annual incomes up
of Living, Digital India, and a focus on electric vehicles, clean rivers, farm to INR500,000 (USD7,008)
of residential productivity and efficient governance were promising and hinted at high
buyers, economic growth. The government proposed that individual taxpayers with annual taxable
encouraging them income of up to INR500,000 (USD7,008) are eligible for the full tax rebate
Bold measures such as demonetization and introduction of the Goods &
to push their and do not owe any income tax. As a result, even persons having a gross
Services Tax (GST) as well as financial inclusion with the Jan Dhan Yojana
budgets for new income of up to INR650,000 (USD9,111) may not be required to pay any
(PMJDY) and Aadhaar programs led to formalization of the economy. The
homes. government also introduced a slew of reforms in the real estate sector that
income tax if they make investments in provident funds, specified savings, or
insurance, among other options. This is planned to provide tax benefits of
has helped it to evolve, for example: the Real Estate Regulatory Authority
INR18,500 crore (USD2.6 billion) to about 3 crore middle class taxpayers in
(RERA), easing norms for Real Estate Investment Trust (REITS), and relaxing
India comprising self-employed, small business, small traders, salary earners,
Foreign Direct Investment (FDI), among others. Programs such as Make in
pensioners and senior citizens.
India, Smart Cities, Housing for All, and the reclassification of affordable
hosuing as infrastructure have helped the real estate sector evolve over the In our opinion, this proposal is a big step and should benefit lower and
last five years. Overall, we believe these measures have helped the sector middle class tax filers. With the benefits of the Pradhan Mantri Awas Yojana
organise, and cope with the slowdown in the residential segment on one (PMAY) scheme, this should spur housing demand from buyers sitting on the
hand while increasing investor confidence in the office and industrial fence, thereby increasing sales of affordable housing.
segments on the other.

2
COLLIERS FLASH UNION BUDGET 2019-2020 | RESEARCH | INDIA | 01 FEBRUARY 2019
Tax relief on rent on second self-occupied house;
benefits of capital gains extended to investment in
two residential houses
Currently, the income tax on notional rent is payable if taxpayers have more
than one self-occupied house. The government announced an exemption of
the levy of income tax on notional rent on a second self-occupied house.
Also, the government proposed that the benefits of capital gains under
section 54 of the Income Tax Act will be increased from investment in one
residential house to two residential houses for taxpayers with capital gains
up to INR2 crore (USD280,406).
We believe that through this proposal the government has addressed a
significant pain point for the middle class, particularly migrants with
dependent parents. Along with the capital gains exemption for up to two
houses, this enables people to have a diversified, tax-efficient real estate
investment portfolio, which should spur residential sector demand across
the country, especially in Tier 2 and Tier 3 cities.
One year extension of 100% profit deduction for
affordable housing projects from 30 to 60 square
metres
The Budget 2016-2017 had allowed a 100% deduction for profits from
affordable housing projects from 30 square metres (in four metro cities) or
60 square metres in other cities. Until now, this exemption was applicable to
projects approved between June 2016 and March 2019 and subject to their
completion within three years. In the interim Budget 2019-2020, these
benefits have been extended for one more year, i.e. to housing projects
approved through 31 March 2020.
We believe that this initiative should further encourage real estate
developers to undertake affordable housing projects. This serves the dual
motive of promoting affordable housing construction in India and creating
job opportunities. By linking this proposed deduction to completion
timelines, it not only incentivizes developers, it clarifies that to enjoy the tax
benefits projects must be completed within three years.
3
Tax breather for notional rent income on completed
but unsold unoccupied projects
Until March 2017, houses that were unsold after receiving their completion
certificates were subject to tax on notional rental income. In the Budget
2017-2018, the government relaxed this rule to allow developers whose
core business is building construction to be covered under this ambit for one
year after of receiving the completion certificate. The Interim Budget 2019-
2020 further increased this time limit to two years, starting from the end of
year in which the project is completed.
This should provide more time for developers to sell their inventory, likely
easing some pressure from carrying the inventory costs. This announcement
is also expected to incentivize developers to complete projects on time.
Increase in TDS threshold limit for rental tax
deduction
The government increased the tax deduction at the source (TDS) threshold
on rent from INR180,000 (USD2,523) to INR240,000 (USD3,364). This would
mean that the tenant’s TDS deduction on a property generating rental
income of INR15,000 (USD210) per month is changed to property generating
a rental income of INR20,000 (USD280) per month.
In our opinion, this is likely to reduce administrative hassles for small tax
payers, while also improving owners’ cash-flow, with limited change in
overall post-tax income.
Primary Authors: For further information, please contact:
Megha Maan Joe Verghese
Senior Associate Director | Research | India Managing Director| India
+91 96 6718 8334 +91 98 6758 4684
megha.maan@colliers.com joe.verghese@colliers.com

Diksha Gulati
Manager | Research | Mumbai
+91 77 0090 1826
diksha.gulati@colliers.com

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