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Budget 2021 – A Chunk for Real Estate

Expectations versus reality is a race that will continue throughout life. We can also say that:Reality – Expectations = Happiness

Real Estate was adversely hit by the pandemic but being resilient, it is on the way to revival. Various factors pinched in for its restoration but the support given by the government during and after the pandemic is quite appreciable. Considering that support, Real Estate had developed many expectations from Budget 2021. Though some were not fulfilled, Real Estate got a small share from Budget 2021.


1. A Chunk for Real Estate

    1.1. Priority to Affordable Housing

    1.2. Increase in Safe Harbour Limit

    1.3. Support to Real Estate Investment Trusts 

    1.4. Infrastructure

    1.5. Succor for Migrant Workers

    1.6. TAX Holiday

2. Major Hits

1. A Chunk for Real Estate

Bouncing back after the pandemic punch, the real estate sector needed a greater push to reduce the impact of the pandemic and for the revival of its fortune. Though there was a list of expectations from Budget 2021, Real Estate did get a chunk of the budget as mentioned below: 

1.1.  Priority to Affordable Housing

In the previous budget i.e. 2019 budget, the government had provided an additional deduction of interest amounting to Rs. 1.5 lakh for a loan taken to purchase an affordable house. The Finance Minister said that this government sees Housing for All and Affordable Housing as priority areas. She proposed to extend the eligibility of this deduction by one more year, to 31st March 2022. With this announcement, it is expected that the real estate sector would do well, as the demand has also been on the rise. Budget 2021 has granted Rs. 54,581 crore to the Ministry of Housing and Urban Affairs. The much-required succor was provided to the Affordable Housing segment. The luxury and some other segments remained devoid of any incentives.

1.2.  Increase in Safe Harbour Limit

The Minister proposed to increase the safe harbor limit from 10% to 20% for the specified primary sale of residential units. This move is to provide incentives to home buyers and real estate developers. This increase in the safe harbor limit would help developers to liquidate inventory at lower prices. SECTION 43 provided a safe harbor limit, wherein the transaction value of real estate could be 10% lower than the assessable value. 

1.3.  Support to Real Estate Investment Trusts 

Section 194 of the Income Tax Act, governs the provisions for deduction of TDS on payment of dividend. TDS stands for Tax Deducted at Source. Budget 2021 exempted dividends from real estate investment trusts or REITs. Suitable arrangements will be made for debt financing of InvITs and REITs by foreign portfolio investors in the relevant legislations. This will ease access to finance. The Finance Minister had abolished the Dividend Distribution Tax (DDT) as an incentive to investment. Now, to provide ease of compliance, the minister has proposed to make a dividend payments to REITs / InvITs exempt TDS. This move will attract more investors and investments.

Further, as the amount of dividend income cannot be estimated correctly by the shareholders for paying advance tax, the Minister proposed to provide that advance tax liability on dividend income shall rise only after the declaration of dividend. For Foreign Portfolio Investors, the deduction of tax will be on dividend income at a lower treaty rate. 

Budget 2021 exempted dividends from Real Estate Investment Trusts (REITs). The current amendment aligns with the same wherein asset SPVs do not have to deduct TDS on payment of dividends to the Trust.

1.4.  Infrastructure

This is another sector that got a slice of Budget 2021. As per the budget, two new technologies i.e. ‘Metrolite’ and ‘MetroNeo’ will be deployed to provide metro rail systems at a much lesser cost with same experience, convenience and safety in Tier 2 cities and peripherals of Tier 1 cities.

The Finance Minister provided a sum of Rs. 20000 crore to capitalize this institution. Infrastructure needs long term debt financing, hence a professionally managed Development Financial Institution will be set up. This will act as a provider, enabler and catalyst for infrastructure financing. Though this chunk of the budget is not directly provided to real estate, it will definitely enhance the real estate sector.

1.5.  Succor for Migrant Workers

As per Budget 2021, social security benefits will be extended to construction workers and minimum wages to apply for all categories. Apart from this, a portal will be launched that will collect the relevant information about migrant workers. This will be helpful to the government to formulate various schemes for these workers. The extended support given to migrant workers, in the form of a portal to ensure their safety is highly commendable. This would further extend the efforts towards the unorganized labour force, migrant workers in particular.

1.6.  TAX  Holiday

To keep up the supply of Affordable Housing, The Finance Minister proposed that affordable housing projects can avail a tax holiday for one more year i.e. till 31st March 2022.

To promote the supply of Affordable Rental Housing for migrant workers, she proposed to allow tax exemption for notified Affordable Rental Housing Projects. This would help to boost a part of the sector.

Tax Holiday is currently available to the developers of Affordable Housing as well as for the developers of Affordable Rental Housing Complexes. Profits derived by these housing projects which are approved by the competent authority until 31st March 2022 are tax-deductible under Section 80-IBA of the Income Tax Act. 

2. Major Hits

Deduction of interest on loans for Affordable Housing, tax benefits for Affordable Housing, and for REITs and InvITs are the major hits given as incentives to the real estate sector. The tax exemption benefit, as well as the deduction of interest on loans for Affordable Housing, is really appreciating. This move is appreciative and is expected to aid the real estate developers who are engaged in Affordable Housing to sell more and pull out from the pandemic sores with greater vigor. 

Another announcement that was welcomed is a tax exemption for notified Affordable Rental Housing projects to migrant workers. This will make rental homes more accessible for migrants. The minister also proposed to allow the entry of Foreign Portfolio Investors into debt financing of REITs and InvITs. The Minister announced that some measures would streamline the funds. This announcement has developed some hopes among the sector. The finance minister also announced the proposed establishment of a SPV for the monetization of surplus land. This would also serve as a boost to the sector. The Finance Minister announced the extension of tax holiday for Affordable Housing Projects for one more year. With this announcement, there are chances of new launches to fulfill the expected increase of supply in the market. To encourage developers to liquidate inventory at lower prices, the budget has increased the safe harbor limit to 20% from 10%. The minister has also allowed tax exemption for notified affordable rental housing projects. Being a strong and resilient sector, Real Estate would revitalize soon and these incentives would really boost its revival. 



Pallavi Krishna


– Written By Pallavi Krishna

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