NEERAJ BANSAL analyses the Budget announcements with specific reference to the real estate and construction sector. The formation of a new Government at the Centre and its desire to put India back on a high growth path makes the Union Budget presented on July 10, 2014 all the more important. The real estate and construction sector (RE&C), like other sectors, had high expectations from the Budget, which essentially stemmed from the sector´s potential and challenges, and the election manifesto of the BJP-led NDA Government.
The challenges faced by the sector included liquidity crunch, high debt cost, low stock turnaround, stagnant order inflow, decreasing demand, fading interest of foreign investors and delays in obtaining approvals. On the other side, skyrocketing prices (especially in metros) and high interest cost capped with high inflation were major constraints for home buyers. Keeping this in mind, let us analyse the Budget announcements with specific reference to the RE&C sector.
Key announcements The Finance Minister made various policy announcements during his speech that can provide impetus to the RE&C sector and create opportunities. Some key announcements include:
Tax proposals Apart from policy initiatives, the minister has also proposed various tax proposals that could go a long way towards improving the prospects of the RE&C sector.
Further, specific tax exemption has been granted on contribution of shares of Special Purpose Vehicle (SPV) by sponsor to REITs or InvITs liability towards its capital contribution. On subsequent sale of the units by the sponsor, gains on such transfer are proposed to be taxed as long-term or short-term capital gains tax as the case may be and the period of holding would be reckoned from the date of acquisition of share of SPV. However, no exemption has been provided with respect to the contribution of assets by sponsors to REITs or InvITs, which could imply taxability on the contribution of assets, though this aspect requires further analysis.
Although the minister has taken measures to make REIT or InvIT attractive, exemption from stamp duty on contribution of asset to REITs or InvIT, amendment to exchange regulations permitting overseas investors (including overseas REITs) to invest and lend money to REITs or InvITs, and specific tax exemption to contribution of assets on the line proposed to contribution of shares are required.
About the Author: Neeraj Bansal is Partner and Head, Real Estate and Construction, KPMG India. * Supported by Nirmal Nagda, Harshita Dhameja and Jasdeep Sahni