There have been no significant changes specific to the real estate sector in the budget. Real estate investment funds which were hoping to find place in the tax provisions were disappointed. Also, contrary to expectations, no tax provisions for Real Estate Investment Trusts (REITs) have been introduced. The real estate sector indirectly benefits from rationalisation of slab rates for individuals which will result in lower tax outflows, enhancing their appetite for home loans. Construction costs are expected to come down due to duty and Cenvat reductions.
The provisions relating to levy of Dividend Distribution Tax (DDT) have been amended to partially eliminate its cascading effect. It is proposed that in computing the amount of dividends distributed by a holding company, the amount of dividends received by it from its subsidiary would be reduced, as long as the subsidiary company has paid DDT. The benefit of this set off is available only once and will not apply in case of a chain of more than one subsidiary company.
For the purpose of the section, a company is called a subsidiary of another company, if the other company holds more than half in nominal value the equity share capital of the company. This amendment would be welcomed by all real estate companies who operate through multiple special purpose vehicles under the flagship company.
The proposed amendment would eliminate the cascading effect of DDT upto one level. The introduction of a right of set off of DDT paid by a direct subsidiary of a parent company will be a large benefit to real estate companies who have, or intend setting up subsidiaries.
Tourism
In order to promote tourism and to attract tourists to certain world heritage sites in India, it is proposed to provide a tax holiday to new two-star, three-star or four-star category hotels located in specified districts. These hotels should commence operations anytime between April 1, 2008 and March 31, 2013.
A new section is proposed to be inserted to provide a tax holiday for five years for new hospitals set up between April 1, 2008 and March 31, 2013. The hospital should have a minimum of 100 beds and can be anywhere in India, other than certain specified cities. So construction of hospitals and hotels in specified districts will get a boost considering the five-year tax exemption.
Healthcare
A tax benefit under Section 80 I(B) for hospitals is a paradigm change and one can expect new generation health technology entering Tier-II and III cities. The sops given to infrastructure and housing sectors in rural areas are a welcome move. However, a reduction in duties and service tax benefits directly to consumers would have propelled the demand for realty. The reduction in input costs of cement, steel etc will definitely benefit the sector.
Reverse mortgage
The Finance Minister has amended the law to provide clarity on taxation of reverse mortgages, which would not be regarded as a ‘transfer’.
A ‘transfer’ excludes transfer of a capital asset in a transaction of reverse mortgage under a scheme notified by the Central Government. Also, streams of payments received by an individual as a loan in a transaction of reverse mortgage will not be included as his income.
The government made it clear that a loan under a reverse mortgage scheme would not be considered as transfer of capital. It is therefore beyond the purview of income. Reverse mortgage is now a tax-free pension for home owners post-retirement and should provide a fillip to home builders, since owning a home in later years has now become more attractive from a returns and financial security perspective.
Special economic zone
The realty sector will also benefit through IT-led demand. Special Economic Zones (SEZs) stand to gain as tax exemptions currently available to software technology parks (STPs) have not been extended. Many new property investments by the IT sector will now come into IT-SEZs.
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Added: Thu Mar 20, 2008 12:50 am GMT 