Here are some of the benefits to the real estate sector in the 2017 budget and the effect.
- Holding period reduced to 2 years to avail of Long Term capital gains.
In our opinion, real estate is one of the best investments to build long term wealth. If you have a kid, who has been working for 3 – 5 years, convince him / her to buy a small flat. Preferably pay by cheque, take a loan, hold it for 2 years and sell it off. In fact, to incentivise the child, the parents should put up the 3 – 4 lacs down payment required initially. Reinvest the money in another flat – probably a slightly bigger one or at a slightly better location. Doing this ensures a few things – the kid puts away a part of the earnings in an investment. Over a few years, the wealth grows. There is no tax to be paid at all! Of course, there could be a slowdown or drop – but that happens with any investment (except a bank fd) and we should teach the kids to take that chance with their investments. By making the period to 2 years, the investments in real estate can be rotated faster.
- Infrastructure tag for affordable housing
With this step, the finance minister has opened up a new avenue for financing for the builders. Normally, the banks have quotas for loans under different heads – those builders who go in for projects under ‘affordable housing’ will now get loans under the ‘infrastructure’ tag from banks – the funds available under this head is far, far more than the ‘real estate’ quota. This also means that the builders will get funds at competitive interest rates and for longer terms.
- Capital gains at end of project
This is applicable for those who have given their land to a builder to develop it on a ‘Joint Venture’ basis. The taxation was always a problem. This has been clarified that the land owner will pay Capital Gains tax only at the end of the project.
- Base year 2001
This is very beneficial to those who have ancestral property or who have bought property before 2001. If the property was purchased prior to 2001, its value in 2001 will be considered as the purchase price for calculating Capital Gains. Previously, if the property was bought prior to 1981, its value in 1981 was considered. This will lead to a lot of savings in tax.
- Limit of 2 lacs on loss on Income from property on second home.
This is, probably, the only negative for the real estate investor in this budget. Till now, if one had bought a second home, funded it through a home loan and rented it out, then the interest paid on the home loan, minus 70% of the rent received, was considered a ‘loss from property’. This entire loss (with no limits), could be written off against any income. There is a limit of Rs.2 lacs imposed by the recent budget. However, the ‘loss’ can be carried forward upto 8 years.
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