Real estate development should be given special status on par with industry SEZ News
The real estate is booming and is a sector, next only toagriculture, which has the maximum growth potential in terms of employment generation and contribution to the GDP (gross domestic product).
This sector, however, is wallowing in neglect and does not even have a status, 'special' or 'industry'. Real estate development should be given special status on a par with industry. Budget 2012-13 has poured cold water on this sector, yet again, and dashed the hopes of developers and builders.
A legion of prominent developers and builders, under the banner of NAREDCO ( National Real Estate Development Council) and CREDAI (Confederation of Real Estate Developers' Association of India), made several representations to the Union government to accord the sector longstanding demands like special status, infrastructure status to the housing sector, special economic zone (SEZ) incentives for promoting real estate development like housing finance, rental housing, deduction for irrecoverable rent and assessment for bank incremental deposits, etc, but nothing came of it.
In a post-Budget memorandum for 2012-13 , developers have again raised these issues. They believe that an industry status will bring about major transformation in the outlook and nature of the sector. It would encourage investment , attract large companies and, most important, inculcate corporate culture and industry discipline in the sector , which would immensely benefit the overall economy, the consumers in particular .
Industry status would also help the sector get bank loans on average interest rates and at low collaterals, against the existing high-risk rates. Further, it would help the sector get central and state subsidies in case developers move into backward regions or the northeastern regions and raise external commercial borrowings (ECBs).
In the post-Budget memorandum for 2012-13 , of NAREDCO, developers have demanded that the sealing of Rs 1 lakh under Section 80C of the I-T Act be increased to Rs 2 lakh with Rs 1 lakh out of it exclusively reserved for payment of principal borrowed for the purchase of a residential house. This would help boost housing stock. A separate limit for payment towards purchase of a house or repayment of principal on housing loan was earlier available under Section 88.
Navin Raheja, the president of NAREDCO, says: "As an incentive to housing development, infrastructure facilities like roads, toll roads, highways including housing, watersupply projects or other activities, etc, must be added to Section 80-IA of the I-T Act, where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any of the business referred to in sub-Section (4) then a deduction equal to 100% of the profits and gains derived from such business shall be allowed for ten consecutive assessment years. This will meet the outstanding demand of housing to be treated as infrastructure ."
Kamal Taneja, the vicechairman of TDI Group, says: "Housing development companies are engaged in undertaking large-scale urban development projects including purchase of raw land and developing it for the purpose of construction of houses, multistoreyed buildings, creation of infrastructure and social facilities like roads, water supply, water treatment, sanitation and sewerage, solidwaste treatment and also to create educational, medical and recreational facilities as an integral part of development of satellite townships, in accordance with the elaborate rules and regulations and with the specific approval from the governments concerned.
Such projects tend to reduce the pressure on existing cities by providing lowpriced alternatives and value for money to the customers."
Navin Raheja says: "After purchasing agricultural land, realty firms create and provide most of the infrastructural facilities. It is only by creating these facilities that the raw land gets converted into developed land, fit for construction of houses and highrise buildings for residential and commercial purposes, thus augmenting the housing stock of the nation.
It is presumed that the activities of these companies are already covered by the definition of 'infrastructure facility' but the position has become debatable as such activities are not covered by a specific clause."
The previous Budget has specified that exemption under I-T Act 1961 would be available to only those SEZs, which are approved on or before March 31, 2012, and begin manufacturing or producing or providing services on or before March 31, 2014. The direct tax code ( DTC) does not cater to concessions available under Section 10AA and 80IAB.
It proposes minimum alternate tax (MAT) at the rate of 18.5% on the book profits effective from April 1, 2012 on developers of SEZ and units operating in the SEZ. The SEZ developers are also required to pay dividend distribution tax (DDT) at 15% after June 1, 2011.