The Indian Union Budget 2021 was presented on 1st February 2021 by our Finance Minister Nirmala Sitharam. Here are few key highlights of the budget and what lies in for real estate industry.
First digital budget in the history of India
Finance Minister Nirmala Sitharam on Monday presented the first-ever Digital Union Budget. She announced her capital expenditure for the FY 2021-22 and focused on providing a major boost to healthcare and infrastructure building.
Sitharam stated that this year’s budget will be focused on six pillars, health and well-being, physical and financial capital, and infrastructure, inclusive department for aspirational India, reinvigorating human capital, innovation and R&D, minimum government and maximum governance.
Real estate
This government sees ‘Housing for All’ and affordable housing as priority areas said Finance Minister Nirmala Sitharaman while presenting Union Budget 2021-22. Real estate sector had various expectations from the Budget 2021, especially post the Covid-19 pandemic.
Ministry of Housing and Urban Affairs has been granted Rs 54,581 crore in this Indian Union Budget 2021.
Increase in safe harbour limit for the primary sale of residential units
In order to incentivise home buyers and real estate developers, it is proposed to increase safe harbour limit from 10% to 20% for the specified primary sale of residential units.
Affordable Housing
In the July 2019 Budget, the government had provided an additional deduction of interest, amounting to Rs 1.5 lakh, in order to provide loan for purchasing an affordable house.
Finance Minister proposed to extend the eligibility of this deduction by one more year, to March 31, 2022. The additional deduction of Rs 1.5 lakh shall therefore be available for loans taken up till March 31, 2022, for the purchase of an affordable house.
Further, to keep up the supply of affordable houses, FM proposed that affordable housing projects can avail a tax holiday for one more year – till March 31, 2022.
To encourage the supply of Affordable Rental Housing for migrant workers, Sitharaman proposed to allow tax exemption for notified Affordable Rental Housing Projects.
REITs
Debt Financing of Infrastructure Investment Trusts (InVITs) and Real Estate Investment Trusts (REITs) by Foreign Portfolio Investors will be enabled by making suitable amendments in the relevant legislations. This will further ease access of finance to InVITS and REITs thus augmenting funds for infrastructure and real estate sectors.
In the last year’s Budget, the government had abolished the Dividend Distribution Tax (DDT) to incentivise investment. The dividend was made taxable in the hands of shareholders. Now, in order to provide ease of compliance, the Finance Minister proposed to make a dividend payment to REIT/ InvIT exempt from TDS.
Moreover, since the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax, the Finance Minister proposed to provide that advance tax liability on dividend income shall arise only after the declaration or payment of dividend.
In fact, for Foreign Portfolio Investors, she proposed to enable deduction of tax on dividend income at a lower treaty rate.
Infrastructure
A total of 702 km of the conventional metro is operational and another 1,016 km of metro and RRTS is under construction in 27 cities. Two new technologies i.e., ‘MetroLite’ and ‘MetroNeo’ will be deployed to provide metro rail systems at a much lesser cost with the same experience, convenience and safety in Tier-2 cities and peripheral areas of Tier-1 cities.
Infrastructure needs long term debt financing. A professionally managed Development Financial Institution is crucial to act as a provider, enabler and catalyst for better infrastructure financing. Accordingly, the Finance Minister will introduce a Bill to set up a DFI. Sitharaman provided a sum of Rs 20,000 crore to capitalise this institution. The ultimate goal is to have a lending portfolio of at least Rs 5 lakh crore for this DFI in three years’ time.
Stressed Asset Resolution
The high level of provisioning by public sector banks of their stressed assets calls for measures to clean up the bank books. An Asset Reconstruction Company and Asset Management Company would be set up to consolidate and take over the existing stressed debt and then manage and dispose of the assets to Alternate Investment Funds and other potential investors for eventual value realization. To make sure the faster resolution of cases, NCLT framework will be strengthened, the e-Courts system is to be implemented and alternate methods of debt resolution and special framework for MSMEs will be eventually introduced.
LED Lights
Customs duty has been increased on inputs and parts of LED lights or fixtures including LED Lamps from 7.5% to 10% and on solar lanterns or solar lamps from 5% to 15%.
Construction workers
To further extend our efforts towards the unorganised labour force migrant workers particularly, FM proposed to launch a portal that will collect relevant information on gig, building, and construction-workers among others. This will help formulate Health, Housing, Skill, Insurance, Credit, and food schemes for migrant workers.
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