New Delhi: Finance Minister P Chidambaram on Thursday announced a Rs 2,000 crore urban housing fund, while making luxury homes costlier by cutting abatement on service tax on a flat with a floor area of over 2,000 sq ft, or prices exceeding Rs 1 crore. The Budget for 2013-14 also proposed to levy a one per cent TDS on immovable properties of above Rs 50 lakh. Besides, the Finance Minister raised tax deduction limit by Rs 1 lakh for the first time home buyers.
"...it is proposed to start a fund for urban housing to mitigate the huge shortage of houses in urban areas. I propose to ask National Housing Bank to set up the Urban Housing Fund and, in consultation with RBI, I propose to provide Rs 2,000 crore to the Fund in 2013-14," Chidambaram said in his Budgetary speech. He also proposed to raise the allocation to the Rural Housing Fund to Rs 6,000 crore from Rs 4,000 crore. On luxury housing, Chidambaram said: "Homes and flats with a carpet area of 2,000 sq ft or more or of a value of Rs 1 crore or more are high-end constructions, where the component of 'service' is greater. Hence, I propose to reduce the rate of abatement for this class of buildings from 75 per cent to 70 per cent."
However, the existing exemptions from service tax for low-cost housing and single residential units will continue. Chidambaram also imposed one per cent TDS on transfer of immovable properties of values exceeding Rs 50 lakh, but exempted agricultural land. "Transactions in immovable properties are usually undervalued and underreported. One-half of the transactions do not carry the PAN of the parties concerned.
The Finance Minister also raised tax deduction limit by Rs 1 lakh for the first time home buyers.
"With a view to improve the reporting of such transactions and the taxation of capital gains, I propose to apply TDS at the rate of one per cent on the value of the transfer of immovable property where the consideration exceeds Rs 50 lakh," he added. Reacting to the proposals, leading realty consultant Jones Lang Lasalle India said the Budget for 2013-14 is tepid for the real estate sector, but was a moderately encouraging in general.
"The rate of abatement on homes and flats of above 2,000 sq ft or costing Rs 1 crore and above has been reduced from 75 per cent to 70 per cent. Effectively, this translates into an increase in service tax outflow, which means that luxury housing will now become even more expensive," Jones Lang LaSalle India Chairman & Country Head Anuj Puri said. The setting up of the Urban Housing Fund by the NHB will infuse liquidity for urban housing, thereby boosting demand.
"The TDS of 1 per cent to be charged on the transfer of immovable property is an obvious move to curb speculation and bring about improved reporting and accountability in high-value immovable property transactions," Puri said.