FinMin may look at 10-year tax holiday on rental profits earned by builders

The finance ministry may look at a 10-year tax holiday for real estate developers on profits earned from rental housing as it looks to revive investment and boost a slowing economy, sources said. In a recent meeting with senior finance ministry officials, the real estate developers have been asked to suggest steps to address challenges faced by the sector.

They have also been asked to submit a note on the rental housing business model, where expenses would be allowed to claim for deduction, but the profit will be exempted from tax for 10 years, sources said.

Over the past few years, investments in the country have fallen from 36 per cent of GDP to 29 per cent, and the finance ministry believes that the primary reason for this decline is slowdown in the real estate sector.
The ministry has already started discussions with industry bodies on their demands from Budget 2019-20, which is likely to be tabled in Parliament in July.

To perk up demand in the sector, the GST Council had cut tax rates on new projects under affordable housing to 1 per cent and 5 per cent for others, without input tax credit, from 8 per cent and 12 per cent with ITC, respectively.

For ongoing under-construction residential projects, however, builders have an option to choose between old tax rates and the new ones to help resolve input tax credit issues.

The real estate developers had long been demanding that the government take steps to improve liquidity situation of developers and also restructure their loans saying that the sector is in financial stress due to lack of funding from banks and NBFCs.