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Budget 2011-12
TAX TIPS
Legend Heights
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Great Expectations
The realty sector hopes to get a better deal this year, writes Geetu Vaid
Urban concerns
Terming the massive urbanisation all over the country as a major focus area, Pranab Datta, VC and MD, Knight Frank India, says, “It is essential to formulate budgetary policies with a vision and a plan for the next 10-15 years to cope with the demand for increasing urbanisation. According to a recent McKinsey report, 590 million people will be living in cities by 2030 and 68 cities will have a population of more than a million. Such a large scale of urbanisation calls for a corresponding initiative of developing new cities, which are nowhere a replica of the crowded cities of today. Policy initiatives that can address the issue of crumbling infrastructure in the existing cities and serve as a guiding light to create new cities will relieve the burdened metro and Tier I cities”.
Affordable dreams
With the maximum demand being in the affordable housing segment, industry insiders see it as an area requiring a serious look by the government. “Affordable housing remains a segment where the government should definitely continue to provide developers with tax free status which was available earlier. Rather than restricting it to unit sizes as in the past of 1,000/1,500 sq ft per housing unit, the government could instead have a maximum per unit value of say Rs 15 lakh for units near Tier I cities, Rs 10 lakh for Tier II cities etc. This would enable such mass housing projects to take off in earnest across the country and benefit the currently large-scale unplanned urbanisation to be better planned in line with social and arterial infrastructure”, suggests Kamal Khethan, Chairman and MD of Sunteck Realty. Pressing for the need to make Special Residential Zones (SRZs) a reality, Anuj Puri, Chairman and Country Head, Jones Lang LaSalle India, is all for more sops for developers who focus on ultra-low-cost housing.
Tax tears
The demand for an increase in the cap on tax deduction on housing loans also has a vociferous support from all sections. Calling the current tax shields of Rs 1.5 lakh on interest and Rs 1 lakh on principal amount inadequate, Khetan reflects the industry sentiment with this comment, “These need to be enhanced to at-least twice as much, with maybe a government rider allowing interest amount to be enhanced in line with the growth in interest rates based on periodic revision in the RBI policy rates. This would provide relief to genuine end users who are now faced with not only higher interest rates but also runaway inflation on household expenses”. Rationalisation of the tax regime and scripting a nationwide uniform taxation system are also among the wish list of developers and industry watchers. “Introduce Goods and Services Tax (GST) and include the real estate sector under the ambit of this single tax regime. This will simplify transaction costs (which currently include stamp duty) and give developers a set-off or credit on the taxes paid on construction material and services”, says
Puri. Continued from P1 “The cost of capital has gone up to 14.5 per cent as opposed to 2 per cent internationally for real estate and that is ridiculous as it leads to unnecessary inflation in the cost of construction and thus the end product because ultimately the burden is passed on to the consumer”, says Sanjay Sachdeva, President-Corporate Strategy & Business Development, AIPL Ambuja. Another gripe of developers is the twin burden of Service Tax and Sales Tax which is ultimately passed on to the end user. “Service Tax is leviable on a service and a product sale attracts Sales Tax. If real estate is a product, it should only attract Sales Tax, and if it’s a service then only Service Tax. Considering the same view, the Delhi High Court had put a stay on the Service Tax applicability and remarked it as ‘illegal’. But the tax-hungry department went ahead to find legislative protection, to ‘cover up’ its loophole and again notified the Service Tax. Both these anomalies, if corrected in this Budget, will surely benefit the consumer of the largest segment that effects the masses and employs the second largest human resource, says Sunil Dahiya, MD, Vigneshwara Developers.
Green care
Eco-friendly and eco-consciousness may be the catch phrases in the promotion of several projects but the “not-so-green” fact remains there are no specific government-backed policies in place to benefit the developers following the “expensive” green path. “We also expect the government to extend subsidies and tax benefits for eco-friendly projects. Such steps would not only encourage more and more developers to build green projects but also help in lowering the carbon emissions,” says Brijesh Bhanote, Sr. V.P. Sales & Marketing of The 3C Company, which has pioneered several such projects in India. Thus, with industry mavens having a very clear idea of the requirements of this sector, the ball is now in the court of the Finance Minister to lay out a satiating menu for the Indian real estate.
VIEWPOINTS
— Sanjiv
Saddy, Senior Vice President and Group Financial Controller, Emaar MGF Land Ltd
— Ravi
Saund, Head Business Development, CHD Developers Ltd.
During the gloom of global meltdown, bank had serious doubts on the valuation of both the said ‘primary security’. Simply, the banks knew the shares/stock (sweat equity) of the promoter had weak tradable value on the bourses
(sensex@6000-8000 levels) and the ‘future cash flows’ would only accrue after the successful execution of the project, which was again fraught with criticism. Hence, the real estate associated with the project was the only security, the banks/institutional
investor(s) were interested to evaluate and consider. Therefore, the real estate industry should ask only one thing from this Budget, and that is to remove this anomaly that a real estate project is not considered as ‘infrastructure’ but when it is a part of the ‘Highway or a toll road’ project on
BOT/BOO, the promoter enjoys income tax exemption. Therefore, a one line statement should be to ‘remove this anomaly’ and consider all real estate projects more than 10 acres as ‘infrastructure’ projects and provide the relevant applicable tax exemption to these. This will help developers to leverage this cost benefit to the consumer. — Sunil
Dahiya, MD, Vigneshwara Developers
Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India
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Tax liability on compensation amount
Q. I had inherited agricultural land owned by my father in a village near Faridabad. The same has been acquired by the government for development as urban area. What are the tax implications with regard to the compensation received/ receivable from the Government of India? — Manish Chanda
n The capital gain arises to an individual or a HUF from the transfer of a land which was being used for agricultural purposes by such HUF or individual or a parent of his. n Such transfer is by way of compulsory acquisition under any law or a transfer, the consideration for which is determined or approved by the Central Government or the Reserve Bank of India. n The capital gain arising from the compensation or a consideration for such land is received on or after first day of April 2004. In case you satisfy the above requirements, the capital gain arising on such compulsory acquisition would be exempt from tax.
No gift tax
Q. I am planning to buy a property for which I would need to borrow some amount from my mother. Is the amount received as a gift taxable or not? — Ravi Jaiswal A. Amount received as a gift from your mother would not attract any tax liability in your hands as the same would not be covered within the provisions of Section 56 of the Act. Your mother would not be liable to pay any gift tax in view of the fact that the Gift Tax Act 1958 is not applicable at present.
Claiming stamp duty
Q. Can I claim Registration fee/stamp duty fee paid for the house that I purchased in the FY 2010-11. — Jasmeet A. Section 80 C of the Act provides that in computation of the total income of an assessee, being an individual or Hindu Undivided Family, there shall be deducted payment made by way of stamp duty/registration fee, and other expenses for the purposes of transfer of a residential house property, the income of which is chargeable to tax under the head “Income from House Property” (or which would, if it had not been used for assessee’s own residence), in his favour. Therefore, in case you have paid the registration fee and stamp duty for the transfer of the house in your name, the deduction will be allowed of the sum so paid under Section 80C of Act within the overall limit of Rs 1 lakh.
Investing in tax-saving bonds
Q. My father, a senior citizen, has recently sold an old property in Mumbai which has resulted in capital gains of around Rs 70 lakh. The sale was transacted in August end. We intend to invest the amount in purchasing another property in Mumbai. However, as the prices have sky-rocketed in Mumbai we are not in a position to purchase any property right now. Is it possible to invest the money in two capital gains bonds currently available (RECL and NHAI) and avail the tax exemption? — Rajasri Chandra A. As the property was sold in August, 2010, you should be able to invest the amount of capital gain in the tax-saving bonds which are presently being issued by the Rural Electrical Corporation Ltd. and the NHAI. The purchase must be effected within a period of six months from the date of sale of the property. You will thus have a time up to February end for the investment in such bonds. Investment in such bonds can be made for a sum not exceeding Rs 50 lakh in a financial year. The capital gain being Rs 70 lakh, your father will have to pay tax on the proportionate amount of capital gain.
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Basics of strength
Jagvir Goyal Sand, pebbles and water play an important role in lending stability, strength and safety to a house. Being the basic ingredients, their quality matters in achieving strength and durability of concrete and brickwork. Let us have a look at the desirable features and quality of these materials: Sand
Sand is called the ‘fine aggregate’ in technical terms. Good quality sand helps concrete in attaining better strength. Sand can be natural or crushed stone sand. For RCC work, one should always prefer to use coarser sand. For this, have a feel of the sand in your hand and you can judge its coarseness. Engineers check the quality of sand by checking its Fineness Modulus which should be more than 2.5 for use in concrete and more than 2.0 for use in brickwork, plaster work and plinth filling. It may not be possible for a layman to check the fineness modulus as it requires a set of sieves. Apart from being coarse, sand should be free of any clay lumps or organic matter. Sand with more quantity of clay or silt is unsuitable for use. Clay and silt content of sand should not be more than four per cent. source: The source decides the quality of sand. Sand from the Pathankot area is considered to be of good quality. It is quite coarse, meets the fineness modulus criteria and is free of clay and impurities. It lends strength to concrete and brickwork. In this area sand is available from Damtal, Mirthal and Pathankot itself. Sand is also available from Burj Kotiyan, near Chandimandir. This sand also meets the technical criteria. Other sources around Chandigarh are Lohand Khad and Bharatgarh near Ropar. Sand available from these sources is often of poor quality. In the Delhi area, Badarpur sand is available and often meets the technical requirements. Jamuna sand available there needs to be checked before use as it often fails to meet the technical criteria. While getting sand from the river, it is advisable to get it from near the inner edge of meander and to ensure that it is coarse in nature. Washed sand also needs a check. Storage: At site, sand should be stored on a temporary brick platform. It shouldn’t be unloaded directly on the ground. Proper storage of sand helps in preventing mixing of soil with it. Leftover of concrete done during the day should not be thrown into the mound of sand.
Pebbles
Gravel or crushed stone or crusher or shingle is called the ‘coarse aggregate’ in technical terms. It plays an important role in imparting strength and long life to concrete. Whether to prefer crusher or round aggregate often depends on the user’s mind. Both types of coarse aggregate have their plus and minus points and the choice has to be made after a thorough examination of each type of aggregate available in an area. Crushed stone: Crushed stone, popularly called ‘crusher’ has the benefit of good grading. No oversize stones and no clay or fine particles are there. However, it may contain flaky and elongated pieces which are not suitable for RCC work. Also it requires more cement than round aggregate for a particular mix design. Ideal crusher should have 85-100% of it passing through a 20 mm sieve, 5-25% passing through a 10 mm sieve and 0-5% passing through a 4.75 mm sieve. Round Aggregate: It is also called the ‘water-borne aggregate’. It suffers from the problems of gap grading and presence of fine particles and clay in it. Its site screening may result in heaps of large sized stones which are of no use. Its silt and clay content should be checked and should not be more than one per cent. Its use provides better workability of concrete and little less quantity of cement than that needed for crusher for a particular mix design. However, it has to be thoroughly washed before use to get rid of clay and silt present on the round stones. Though both types, the crusher and round aggregate, have their own supporters, crusher should be preferred by selecting it from a suitable source as it doesn’t suffer from uncertainties linked to round aggregate. Source: For coarse aggregate or crusher also, Pathankot and adjoining areas are the best source. Aggregate available from there meets the technical criteria and is free of flaky or weak material. There are no impurities also. Pathankot (Madhopur), Damtal and Mirthal provide very good quality of crusher. In the Chandigarh area, coarse aggregate from Burj Kotiyan near Chandimandir is of good quality. Aggregate available from Bharatgarh is of poor quality. It has lots of flaky material which crushes under weight. Aggregate available from Ramgarh or Mubarakpur crushers is often satisfactory but needs a careful check before selection of the lot. Crusher is available at Tajewala, near Yamunanagar at very cheap rate and is in great demand in that area. Therefore, no trucks of crusher arrive in Chandigarh or Punjab area for sale from that source. Size: In houses, as the thickness of RCC slab is often around 5 inch and dimensions of columns and beams are small, one should prefer 20 mm down aggregate for columns, beams, lintels and slab. By 20 mm down aggregate means the aggregate having maximum size of 20 mm. We can say that all RCC work except foundations should be with 20 mm down aggregate. For damp-proof course, 10 mm down aggregate should be chosen. 40 mm down aggregate should be used in foundations only.
Water
Water being used for construction work also needs a careful check. We can’t be negligent towards its quality. The water used must be clean, having no odour or taste, rather fit for drinking purpose. Sea water is not suitable for construction work. Caution: If water contains dissolved chlorides or sulphates, it may cause great harm to the steel embedded in concrete as these salts are enemies of steel and corrode it quickly. One must, therefore, look for a good source of water. Generally a handpump or tubewell is installed at site before the construction work begins. No harm in spending a few rupees on getting the sample of water tested and knowing its worthiness. Some water testing kits are also available these days with reputed companies. The Ph value of water should be more than 6. Certain impurities like zinc and copper delay the initial setting of concrete significantly. The presence of any algae in water is not tolerable. ISI Mark for water? Yes, there is an IS code even for the water to be used for construction purposes. IS 3025 brings out all the permissible limits of impurities that can be allowed in water to be used. (This column appears
fortnightly).
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Legend Heights
Innovative Developers have launched Legend Heights — a mega commercial project with the investment of Rs 250 crore in Gurgaon. The project will be completed by December 2012.
With a total area of 4.5 lakh sq ft , Legend Heights, an office-cum-shopping complex, will be a part of a mixed use development. This will have 140 keys international chain of Hyatt group of hotels, Grade A office space for MNCs, Indian corporate, retail chains, consultants, service providers, banks, financial institutions, insurance and travel companies, entrepreneurs’ corporate retail, hyper markets and much more. As per info given by the developer
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Come February and the air gets thick with the expectations about the Union Budget. Everyone gets curious about new taxes, tax rebates, prices of commodities and other issues that will have a bearing on their lives for the next 12 months. The realty sector, which is a major pillar of the Indian economy, too, is not immune to such expectations. The first decade of the century remained a bitter-sweet one for the sector with its ups and downs.
GROUND REALTY
Come February and the air gets thick with the expectations about the Union Budget. Everyone gets curious about new taxes, tax rebates, prices of commodities and other issues that will have a bearing on their lives for the next 12 months. The realty sector, which is a major pillar of the Indian economy, too, is not immune to such expectations. The first decade of the century remained a bitter-sweet one for the sector with its ups and downs. The dawn of a new decade suffused with the golden glow of the recent boom in the sector has raised new hopes for all those connected with it. Industry mavens want the Budget this year to set the pace for the next decade in which the rough edges and contradictions plaguing the sector are smoothened out and a new road is paved for growth and progress. “The Indian real estate sector has already passed the litmus test of the global slowdown and has inherited strength of moving forward. There are legal norms that have been provided by the government time and again but the revisions and firmer guidelines have made the atmosphere ambiguous for foreign investors in the real estate sector. A clear legislature would make it easier for the foreign investors to invest in the given sector for both short & long term,” says S. K. Garg, Director of Innovative Developers.
As a sector, we wish the Finance Minister adopts a pragmatic approach this year. We are in the business of providing homes and infrastructure for urban India and some benefits will help us leapfrog significantly. We contribute substantially to the economy and employability and targeted tweaking of duties to boost the sector will act like an elixir for the economy. Rationalisation of taxes and duties, an enhanced thrust on infrastructure spending and targetted implementation will have trickle down effects on the real estate sector as well. The variance and haphazardness in land records across the country bleeds the GDP growth by 1.5% every year, according to a recent study. If this is tackled and digitised the economic growth will benefit on one hand while the sector receives a substantial boost in visibility, funding and acceptability on a wider scale.
It is time that this sector gets its due recognition and impetus. I am pretty optimistic and hope that the Union Budget 2011-2012 will bring in a fresh lease of life and reforms that will give the industry the much needed thrust. There is an urgent need to create Real Estate Regulatory Authority and bring into force a Model Real Estate (Regulation of Development) Act. Apart from this timelines for government approvals should be reduced. 
During the slowdown period one factor that adversely effected all major infrastructure projects was the
bank(s)/institutional investor(s) apprehension to accept the surmise of primary security of creating a ‘first charge’ offered by the developer
viz; the ‘future cash flows’ and the promoters’ “sweat equity”, both as the only collaterals. 
Under the revised DTC, SEZs have to be notified before March 2012 and become operational before March 2014 to be able to avail of the tax benefits. The Union Budget should consider a relaxation of this requirement to provide greater impetus to the demand for commercial real estate from the IT and manufacturing industries.
A. The answer to your query is based on the premise that the agricultural land was covered within the jurisdiction of the municipal authority or was within such distance from the local limits of municipal authority as has been notified by the government. The capital gain arising on compulsory acquisition of such an agricultural land would be exempt from tax subject to the fulfillment of the following conditions: