Benefits Announced For Real Estate Property Owners In Budget 2019

TDS exemption

Under the existing income tax act (section 194l) a person (not individual or Hindu undivided family (HUF)) who is responsible to pay rent has to deduct tax at source on the amount paid if it exceeds Rs 1,80,000 during a financial year. This is also an obligation that is applicable to individuals or HUF that required to perform tax audit.

The TDS (tax deducted at source) limit was extended to Rs 1,80,000 from Rs 1,20,000 in 2010. The current government proposed to increase this exemption limit from Rs 1,80,000 to Rs 2,40,000 for a year.

This will benefit land owners that rent their property to businesses as they will receive higher rental income that would otherwise be deducted as tax.

Notional rent

As per the existing rules, when an individual has multiple residential houses, they can choose one of them as "self-occupied" and the others are considered let out on rent by default.

For the tax liability calculations, one need not pay any tax on the "self-occupied" property but the second one will be charged with tax on the notional rent that would have been earned if the house was rented (even if it is actually vacant).

In the presentation of the Budget, Piyush Goyal proposed to abolish the tax on notional rent on a second self-occupied house that will help middle-class families who maintain houses at two locations on account of their job or child's education or parental care.

This means that the law will now be modified to include tax exemption on two self-owned houses rather than one and additional houses above them will be taxed as they always were.

As for real estate businesses, where houses act as their inventory, the exemption of tax on notional rent was proposed to be extended from one year to two years.

This means that they need not pay tax on notional interest on their unsold inventories for a period of two years from the end of the year in which the project was completed.

LTCG rollover

Under section 54 of the Income Tax Act, an individual can avail tax exemption on capital gains made from selling a residential property if they use the proceeds of the sale to purchase another residential property.

In the budget 2019, it was proposed to allow the rollover of long term capital gains (LTCG) of up to Rs 2 crore towards purchase or investment of two residential properties instead of one.

However, this benefit can be availed only once in a lifetime.

Extension of Tax Benefit On Housing For All Scheme

Section 80-IBA was added on 1 April 2017 of the income tax act to allow a 100 percent deduction on any profits or gains from the business of developing and building affordable house projects under the 'Housing for all' scheme.

The benefit is proposed to be extended by a year, that is, for all housing projects to be registered and approved under the Real Estate Regulatory Act by 31 March 2020.

Note that the tax exemption is subject to certain limits based on location and carpet area of the house.