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Will Tax Reforms Make Housing Cheaper? Yes, Says Deepak Parekh

Mumbai: A large number of big corporates and reputed developers are entering the affordable housing segment, attracted by huge tax benefits and reforms initiated by the government, eminent banker Deepak Parekh has said. He also expressed hope that real estate prices would decline more once RBI allows banks and housing finance firms to lend to developers for land purchases and approval processes for projects are further streamlined and shortened.

Lauding the NDA government for coordinated efforts of the Prime Minister’s Office with various ministries and departments on the ‘Housing for All by 2022’ mission, Parekh said this has been one of the main promises made by Prime Minister Narendra Modi and several steps have been taken, especially this year, to achieve this goal.

“I will call this year’s Budget an ‘affordable housing budget’. I am very excited about housing growth in India in next 3-5 years and I have never been so enthused about it,” Parekh told Press Trust of India in an interview.

Parekh, Chairman of housing finance major HDFC Ltd, said the government is focusing on “practical and realistic steps” which are good for developers, consumers and even the lenders. Speaking in detail about various schemes and measures, Parekh said the government has extended the 100 per cent tax deduction scheme for affordable housing projects approved between June 2016 and March 2019, by two more years till 2021.

“What this effectively means is that any developer, for affordable housing project, has to pay zero tax. I do not know of any industry in India where you have to pay zero tax even if you make profit, other than in affordable housing. “It shows the importance, the urgency and the critical need that housing requires in a vast country like ours,” he said.

Parekh also said that a clear carpet area definition has been put in place for affordable housing units — 30 sq meters in four metros and 60 square meters for rest of the country.

“They have also made it clear that these measurements are for municipal limits, so areas like Navi Mumbai and Thane would not have Mumbai limit of 30 sq mt. The business leader said the infrastructure status to affordable housing is another major benefit that builders have been given by the government and this will help lenders too.

“This means they can take long-term funds from institutions such as insurers and pension funds. Insurance firms and pension funds need to invest certain portion of their money in infrastructure sector and the affordable housing now qualifies for those funds.

“The RERA (Real Estate Regulatory Act) and these new measures will also stop the practice of builders taking full money in advance from the customers and then building the project entirely on the basis of customers money. “The tax benefit is attracting builders in a big way to affordable housing. We have seen big builders in big cities approaching us that they want to get into affordable housing.
We are supporting the builders for getting into affordable housing,” he said.

Talking about other steps that would give a big fillip to the sector, he said the housing loan interest subsidy scheme is a game changer that gives subsidy of up to 6.5 per cent. The scheme was initially launched for EWS/LIG but now has been modified and extended to MIG also which is a very good step.

“There are 3-4 other things which the government has done. Holding of property is down to 2 years to qualify as a long term capital asset,” he said. On other good provisions, Parekh said when a builder earlier had unsold flats in a completed project, the notional rent was taxed on these unsold flats from the year in which the project was completed.

Now, notional rent of properties will be taken as nil for one year from the date of obtaining completion certificate. “So now, the government has given then one year from the date of the receipt of completion certificate to sell the apartments and till that year the notional income from the unsold units would be considered nil,” he said.

On joint development, he said earlier capital gains was charged at the time of entering into the Joint Development Agreement (JDA), but now it is after completion of the project, “which makes much more sense”. “All these are small points, but they bring so much of clarity,” Parekh said.

PTI