Budget Hits Hard the Realty

In honor of Tax Day
The real estate sector got hit quite seriously by the budget details. Very intelligently the Budget bribed the home buyers in the form of interest rate subvention and tax savings. On the other hand  service tax on lease rentals in the Finance Bill was also brought back. So, the builders decided to pass on the service tax burden to customers. The continuation of interest rate subvention and higher disposable income in favour of  individuals through income tax reliefs would make up for it and appear as the silver lining.

A maximum tax savings announced by Budget of Rs 20,000 for those earning an annual income up to Rs 5 lac and up to Rs 50,000 for those earning up to Rs 8 lac is likely to find its way towards buying homes. But the biggest worry of developers is re-introduction of service taxes.

Jai Mavani, executive director and head of the real estate practice at KPMG said, “The imposition of service tax will increase the price of properties.This has hit the hardest, as even renting under-construction property will attract service tax now.” Apart from this though the budget gave some relief by extending the completion deadline to projects started before March 31, 2008 as “one-time relief to the sector” but still developers and consultants said the measure does not help much. the impact of the amendment would be marginal because the commencement date of March 31, 2008, has not been extended but the period for implementation has been extended by one year.

However, hotel industry welcomes expansion of investment-linked deduction. The finance minister’s gave investment-linked deduction to new hotels in two-star or above categories.States like Himachal Pradesh and Uttarakhand will be benefitted. Now it has been extended to all.

A Delhi-based analyst said, “It’s a good measure that will boost investment in the tourism sector, with high employment potential. Also, the fact that the benefit is made available to hotels across the board will boost investment in all categories”.