Saket Dalmia, president of the PHD Chamber of Commerce and Industry (PHDCCI ), has recommended changes to the tax rules on notional income from residential properties.
Under Section 23 (5) an unsold property held as stock-in-trade and not let out, the annual value of the property up to one year (increased to two years in February 2019) from the end of the fiscal year, when the completion certificate is received, is taken as nil. "Thereafter, it is assessable as income from house property based on notional rent, which is a "subjective criteria, open for misuse," he said.
Dalmia noted that this provision creates “genuine hardship” for real estate developers, already under pressure in a sluggish market with large unsold inventories. Taxing a notional rent after two years from the end of the financial year will lead to severe financial implications for the developer and the industry .
He said there are situations where the market does not permit sale at an efficient price, but the flats were never meant to be let out, so notional income should not be taxable.
It may also adversely affect newly launched projects if sales remain low, which will defeat the mission of the government to provide “housing for all”.
The industry is clearly nervous. It is more so because the sector is not been going through the best of times in recent years. Buyers’ interest has been erratic at best. Sales have plummeted to historic lows. Without any fresh stimulus, the housing sector has had to deal with a series of disruptions.
Dalmia suggested that the entities engaged in real estate business should be exempted from the tax burden of notional rental income as they are, in any case, subjected to levies at the time of sale. The two-year period should be extended to five years before introducing such a provision.
He also supported “Increasing the limit of interest deduction paid on home loan from Rs 2 lakh to Rs 3 lakh under Section 24 (deduction from income from house property)."
Dalmia said that under Section 24(b), deduction on account of interest payment on housing loans is permissible to owners of rented dwelling units to the fullest extent in some cases. In the case of self-occupied houses, the limit is set at Rs 2 lakh.
Also, the deduction is available after the acquisition or construction is completed within five years from the end of the financial year in which the capital was borrowed.
Dalmia said the deduction under section 24 should be made applicable from the year in which the capital was borrowed and should be allowed up to full interest paid, at least for one house. “In case this is not agreed, at least the limit of Rs 2 lakh should be raised to Rs 3 lakh for owner-occupied houses. Also, the five-year period for acquisition/completion from the year of borrowing should be dispensed with. This will provide much-needed impetus to the housing sector, which is reeling under huge housing shortage and delayed projects due to cash flow," he said.