Budget Reaction by Khaitan & Co. on Real Estate



Quote from Rashmi Deshpande, Associate Partner on Real Estate

The Union Budget 2017 has set out certain proposals which are a welcome move for the real estate sector:

(i) Low Cost Housing: The criteria for low cost / affordable housing has been changed from built-up area of 30 / 60 sq mtrs to carpet area of 30/60 sq mtrs, thus making the low cost – affordable housing segment more lucrative for the builders and also making the segment more attractive for the buyers. With the change in criteria from built-up area to carpet area, the purchasers get more spacious homes and the builder is able to market the property to a larger segment of buyers.

Also the tax break of 1 year post receipt of the completion certificate, for the unsold stock, gives a slight breather to the builders.

(ii) Reduction in Income tax rate for basic slab: Will help broaden the tax net and also increase the disposable income in the hands of the tax payers coming within the category. This, coupled with the incentives on low cost housing and the reduction in interest rates by banks, is likely to promote thrust in the affordable housing segment.

(iii) Taxation of Capital Gains of Joint Development Agreement:  The budget proposes to change the prevalent practice and has clarified that the landowner entering into a joint development agreement for development of the property, shall be subject to capital gains tax upon completion of the project. This is a significant change, which is much needed, to bring clarity on the aspect and avoid litigation with the department, which was invariably a norm given the current ambiguity.