Budget and Real Estate

2 Feb 2023 , 01:40 PM

• Taxing REIT distribution (Negative): Distribution in the form of repayment of capital is also now taxed. REIT usually distributes its income in the form of Interest, dividend and repayment of capital. Now, only divided remains exempt. Embassy REIT and BIRET have 45-50% of their distribution as repayment of capital. This is applicable from 1^st April 2024. However, we await further clarity on this.
• Capping Capital Gains on Residential Sale (Negative): Capital gains exemption on sale of residential property/other long-term capital asset is now capped at Rs100mn. The act says this is to restrict the huge deductions claimed by high net worth individuals who are buying expensive residential houses. This is applicable from 1st April 2024.
• Restriction on double deduction on housing loan interest (Negative): If an assesse claims Interest on housing loan (u/s 24 and in some cases Chapter VI-A), the same will not be allowed as part of cost of acquisition while claiming capital gains on sale of such asset. Negative for homebuyers. This is applicable from 1st April 2024.
• PMAY allocation stable (Neutral): PMAY allocation has been kept stable YoY from Rs770bn (revised estimates) for FY23 to Rs790bn for FY24 (a modest increase). Also, this is largely for affordable housing (under Rs4.5mn ticket size) where listed developers don’t have a meaningful presence.

Analysts of IIFL Capital Services believe negative impact of the budget announcements on the real estate sector.