The Budget 2013 is very disappointing for real estate sector. There will be negative impact of budget on real estate. Though Real Estate is in bad shape as of now and was expecting much more from Budget 2013 but there is no effort from FM to revive and boost the sector. I am listing down impact of Budget on Real Estate sector.
1. TDS @ 1% on all Property transactions above 50 Lacs:
This proposal was made in last year’s budget also but later rolled back due to strong opposition. The objective behind this proposal is to stop circulation of black money in property transactions. Half of the property transactions in country does not carry the PAN & majority transactions are undervalued and under-reported. However Agricultural land will be exempted from this propsal. I fail to understand why Govt is so kind to farmers. Farmer buying 50 Lac land is equally rich compared to person buying 50 lac flat.
The onus of deducting TDS is on Buyer i.e. Buyer has to deduct 1% TDS on property value before making payment to seller. This proposal will come into effect w.e.f June 01, 2013. For buyer this will be cumbersome process because in order to deduct TDS, he needs to obtain TAN and follow other processes like filing of TDS returns and issue of TDS certificates.
Currently economy is in distress and this is not the right time to introduce these kind of provisions. This proposal will increase the property prices.
I give THUMBS DOWN to this proposal.
2. Increase in Tax Exemption Limit by 1 Lac for Home Loan interest on 1st Home Loan upto 25 Lacs
At 1st glance anyone will jump out of seat after reading this proposal, On reading fine print the if’s & but’s attached to this proposal make it dump squib. There are 3 conditions attached to this proposal
(a) Home Loan for Property should be availed only in 2013-14
(b) It is applicable only for Home Loans upto 25 Lacs
(c) The Home Loan should be 1st Home Loan for the buyer
(d) Property value cannot exceed 40 Lacs even if Home Loan is of 25 lacs
With these conditions, the no of people to be benefited will not be many.
I give THUMBS DOWN to this propsal
3. Service Tax increase on Luxury Housing
Luxury housing contribute approx 18% of total real estate demand and budget proposal to decrease rate of abatement from 75% to 70% on homes and flats above 2000 Sq. ft. or flats costing 1 Cr or above. What it implies that Service Tax rate will increase from existing 3.09% to 3.71%. It will not have major impact on real estate because (a) Service Tax is applicable only on new constructions and (b) In Luxury segment, the buyer don;t mind paying little extra :) I give NEUTRAL rating to this clause.
I am not going to spend much time on rest 2 proposals
4. Allocation of 2000 Cr to Urban Housing Fund, which will be set up by NHB in consultation with RBI to mitigate huge shortage of houses in Urban Area.
5. Increase allocation to Rural Housing Fund from 4000 Cr to 6000 Cr
From Common Man’s point of view the impact of budget on real estate is NEGATIVE. Let’s wait for next year’s budget from New Govt at centre in 2014. If it will be presented by Narendra Modi Govt then we can expect positive impact of Budget on Real Estate in 2014.
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