CA Mahesh Chhajed (Partner, M. S. Chhajed & Co) classifies and highlights the important proposals in the areas of real estate and residential houses, small and medium income earners, TDS and income tax assessments. Author highlights exemption from notional interest on 2nd self occupied property and properties held as stock-in-trade during the 2nd year, extension of time limit for approval of affordable housing projects, enjoying tax exemption u/s. 80IBA and benefit of re-investment of capital gains u/s. 54 in two residential houses. He further points out Government’s aims for electronic scrutiny assessments with anonymity, restricting human interface within two years. Appreciating the Budget to be favourable to small and middle class families, the author signs off with a suggestion that “instead of proposing rebate, tax slabs may be changed so that the benefit is passed on to the general public at large rather than to a restrictive category”

Real Estate Sector and Residential Houses.

Real Estate sector has been ailing and various recommendation have been received by the Government for revival of this sector. In order to give impetus to the sector and also to extend the economic benefits to middle class and lower class people following steps have been proposed:

1. Section 23(5) has been amended to increase to time limit from 1 year to 2 years. Now no notional rent is required to be offered for the building units held as stock-in-trade for the period up to two years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority. This shall reduce the tax burden on real estate developers who were required to offer notional income with respect to unsold units held in stock.

However the said move is not sufficient to bring respite to already ailing industry. The levy of tax on notional rent on stock-in-trade is a double edged sword as it severely affects the developers already faced with huge inventory of unsold units now requiring to pay taxes on such notional income which in turn will eventually inflate the valuation of property.

2. Time limit for approval of affordable housing projects, enjoying tax exemption u/s. 80IBA, has been extended from 31.03.2019 to 31.03.2020. The additional time period of 1 year has been provided for approval of new affordable housing projects in light of the Government mission to provide housing for all. Though the time limit has been extended no major changes can be expected as there is already huge unsold inventory lying in the market, hence limit number of new projects can be expected.

3. It has been proposed to exempt income tax, levied u/s. 23(4) of the Act, on notional rent on a second self-occupied house. The said amendment has been brought to provide relief to middle class families requiring to maintain families at two locations on account of their job, children's education, parents etc. However the ceiling limit for deduction of housing loan is fixed at 2,00,000/- irrespective of number of houses. Thus though this move is brought to encourage the home owners to buy second house, no change in ceiling limit on interest paid on housing loan may dampen the intention of the Government and no significant increase for demand in residential houses can be expected. Thus the interest on housing loan on second house is also required to be allowed as an additional deduction.

4. Amendment has been proposed to increase the benefit of re-investment of gains on sale of residential house under Section 54 of the Income Tax Act by allowing investment in two residential houses, from existing limit of 1, for a taxpayer having capital gains up to Rs. 2 crore. The benefit of investing in two houses can be claimed only once in lifetime by the assessee. The intention of the government must be applauded as the said amendment is in line with the thought process to encourage purchase of second house by the tax payers. However the limit of 2 crores is restrictive and shall benefit only limited people as the residential property prices in the metro and certain mega cities like Mumbai, Banglore, Chennai etc. is sky high and inflation of rate in urban area, the the ceiling of 2 crores would void the benefit to the people of residing in urban areas. It is opined that the limit of capital gain just be increased form 2 crores to 5 crores which would benefit the general public at large.

5. Recommendation has also been made to the GST Council for reducing the rate of GST on residential property, thus benefitting several home buyers.

In light of proposed amendments, effective from 01.04.2020 i.e. for financial year 2019-20, increase in demand in mid-size and affordable houses can be expected. However, the aforesaid amendments may not bring significant relief to the tax payers. Though the intention of the Government to revive the real estate sector may be appreciated, the measures brought in, may not prove to be sufficient to provide any major relief to the developers and the home buyers.

Tax Benefits to Small and Medium Income Earners

1. Standard deduction of Rs. 40000/- available u/s. 16(ia) available to salaried employees in lieu of allowances like transport, medical etc. has now been increased to Rs. 50000. This is likely to benefit 3 crores salaried people and pensioners

2. Rebate provided under section 87A has been increased from Rs. 2500/- to Rs. 12500/- and ceiling limit of net taxable income for claiming rebate has been increased from Rs. 350000/- to Rs. 500000/-. With this amendment the effective tax levied on people having net taxable income not exceeding Rs. 5,00,000/- is NIL.

The increase in standard deduction by Rs. 10000/- shall provide maximum benefit of Rs. 3588/-. Hence no major relief has been provided. Further the increase rebate provided as against the increase in slab rates in line of the Government's initiative to increase the tax base assessees' and increase the number of people requiring to file return of income. However, rebate provided is restricted to small income earners. If the intention is to provide relief to majority of the individual tax payers, then instead of restricting the relief to small income earners i.e. below 5 lakhs, the relief must be exited to all tax payers by changing the slab rate. The said move is expected to approximately cost 1% of tax collection but will bring major relief to further 3 crore tax payers. The Government has again missed the opportunity to provide the relief as anticipated by people at large.

TDS

The ceiling limit for deduction of taxes on interest (TDS) u/s. 194A earned from deposits, held with banks, co-operative society engaged in carrying on the business of banking or post office, has been increased from Rs. 10000 to Rs. 40000/-. This shall benefit small and nil tax payers who were required to file returns to claim refund of such tax deducted.

Assessee's, other than Individual and HUF, paying rent for plant and machinery or immovable property are now required to deduct TDS on payment exceeding Rs. 2,40,000/- during the year as against the existing limit of Rs. 1,80,000/-.

Assessments

Digitalisation of processes and eradication of corruption has been at the centre of Government's policy. The drive for electronic and faceless scrutiny assessments has already been implemented in metro and mega cities. Within two year all the scrutiny assessments shall be done electronically with anonymity thus restricting human interface.