Budget 2021

Budget 2021 — Incentives for the Affordable Housing Sector

Union Budget 2021-22 was an unprecedented one, considering the unusual time when it was presented. While many other nations are still fighting the economic aftermath of the pandemic and the second wave of infections, India obviously has overcome our worst fears. The economy is up and running now and pleasant indicators are coming up regularly. For example, GST collection in January 2021 has made a record of Rs 1,20,000 crore, much higher than even the pre-Covid level.

Deductions under Section 80EEA is Extended for Another Year

In a move that indicates that the government plans to continue to support the country’s affordable housing segment by incentivising first-time home buyers, finance minister (FM) Nirmala Sitharaman proposed to extend the benefits of Section 80EEA for another year.

Launched in the 2019 Budget, Section 80EEA helps first-time homebuyers to save an additional Rs 1.50 lakhs per year against the home loan interest payments, over and above the Rs 2-lakh deduction limit allowed under Section 24 (b), for the purchase of housing units worth up to Rs 45 lakhs. This way, such a buyer is able to claim deductions of up to Rs 3.50 lakh every year towards the interest payment of his home loan, provided he meets a bunch of terms and conditions while applying for the home loan.

This step will greatly help first-time home buyers and also help the government to achieve its goal of housing for all by 2022.

Tax Holiday for Affordable Housing Projects is Extended till March 31, 2022

The Finance Minister was seen to be extremely keen to help the revival of economic growth and she proposed myriad policy interventions, tax benefits to achieve this objective.

She proposed that the benefits of tax holiday to the developers of affordable housing projects under Section 80 IBA be extended till March 31, 2022.

Under the scheme, which was also launched in the Budget 2016, developers can claim a 100% tax deduction on profits from affordable housing projects. These projects must utilize at least 90 per cent of the total permissible floor area ratio for residential buildings in the 4 metro cities and at least 80 per cent in other areas. Additionally, each residential unit must not exceed 30 sq. mt. in the 4 metro cities and 60 sq. mt. in other areas.

Increase in Safe Harbour Limit for Primary Sale of Residential Units

In order to incentivise home buyers and real estate developers, it is proposed to increase the safe harbour limit from 10% to 20% for the primary sale of residential units up to the value of Rs 2 crore. This means that home-buyers who purchase properties with values below the circle rate by up to 20%, will not have to pay any additional tax. Similarly, developers selling units below the circle rate by up to 20% will not have to pay any additional tax. This benefit will be applicable from the assessment year 2021-22.

Support to Affordable Rental Housing Complexes

The central government is aware of the need for affordable rental housing for the urban poor, especially the migrant workers. Budget 2021 intended to incentivise the construction of affordable rental homes and proposed tax exemption.

A new sub-section has been added in Section 80 IBA for implementing this change. Under sub-section 1A would read: “Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building rental housing project, there shall be allowed a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.”

Sub-section (6) after clause (d) also defines “rental housing project” as a “project which is notified by the Central government in the official gazette under this clause on or before the 31st day of March 2022, and fulfills such conditions as may be specified in the said notification.”

Additionally, Budget 2021 proposed to massively increase the outlay for infrastructure development and this will surely assist the real estate sector. There will be additional investment in Metro line construction in several cities. Moreover, the push towards creating a better health infrastructure is also likely to help the real estate sector.

Budget 2021 is a huge step in the direction of propelling the economy with massive support and investment towards its ambitious growth objectives.

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