The Centre expanded the reach of the tax deducted at source while purchase of immovable property, increased the tax rebate on affordable housing for a limited period and promised to bring in a model tenancy law across the country in the budget tabled on Friday.

What should a consumer bear in mind now? The Telegraph explains:

Bad news

The buyer is now required to deduct 1 per cent of the stamp duty value of a property, if it is more than Rs 50 lakh, and deposit it as TDS. The responsibility of deduction and deposit lies with the buyer.

However, apart from the consideration of the apartment/house, builders often charge additionally for providing allied services such as club membership, car parking, electricity and water facilities.

So far, TDS was not being deducted on payments for allied services. Not any more.

The budget document says: “It is noted that in the transaction involving the purchase of immovable property, there are other types of payments made besides the sales consideration and the buyer is contractually bound to make such payments to the builder/seller, either under the same agreement or under a different agreement.

“Some of such payments are those for rights to amenities like club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee etc. Accordingly, it is proposed to amend the explanation to said section (194-1A) and provide that the term ‘consideration for immovable property’ shall include all charges of the nature of club membership fee, car parking fee, electricity and water facility fees, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property.”

This amendment will take effect from September 1, 2019.

Good news

The budget seeks to prod buyers of affordable homes with additional tax sops, keeping in mind the government's aim of housing for all by 2022.

If an apartment in the affordable segment, with a stamp duty value of Rs 45 lakh or less, is bought with a home loan, buyer will get additional tax deduction on Rs 1.5 lakh interest paid, over and above existing exemption of Rs 2 lakh.

However, this is a limited period offer. The property has to be purchased between April 1, 2019, and March 31, 2020. It has to be the first home of the buyer. Moreover, a buyer has to pay reasonably high EMI. The annual interest component in the instalment must be Rs 3.5 lakh to avail oneself of the full benefit.

“In order to provide a further impetus, I propose to allow an additional deduction of up to 1,50,000/- for interest paid on loans borrowed up to 31st March, 2020 for purchase of an affordable house valued up to 45 lakh. Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh. This will translate into a benefit of around 7 lakh to the middle class home-buyers over their loan period of 15 years,” finance minister Nirmala Sitharaman said in her budget speech.

As of now, a borrower of home loan is eligible to income tax deduction (on applicable tax rate) on interest paid up to Rs 2 lakh under Section 24 Income Tax Act. This deduction is allowed for all properties irrespective of the price.

Mixed bag

The government proposed reforms in the tenancy law to encourage more people to take up homes on rent.

“It is proposed that several reform measures would be taken up to promote rental housing. Current rental laws are archaic as they do not address the relationship between the lessor and the lessee realistically and fairly. A model tenancy law will also be finalised and circulated to the states,” Sitharaman stated.

Tenancy law is a state subject which means individual states have right to enact law. It is not known how many states will cross the political divide to enact model law as tenancy acts often reflect ground reality of respective states.

For instance, the tenancy act is tilted more in favour of the lessee than the landowner in Bengal. With the model act, availability of good quality rented home may rise but the monthly rent of old tenants is expected to rise.

Industryspeak

Sushil Mohta, chairman of Merlin Group, said the government should have expanded the definition of affordable housing to cover homes priced up to Rs 60 lakh, not Rs 45 lakh, for accessing tax sops.

Harsh Patodia, president designate of Credai, said he expected more from the government to increase demand for real estate sector.