DNAindia reports
Real-estate developers may be in for some bad news. The Central government is debating on whether or not to extend the income tax benefits under Section 80-IB of the Income Tax (IT) Act beyond March 31, 2007. Under this section, developers constructing residences up to 1,000 sq-ft in Mumbai and Delhi and 1,500 sq-ft in other cities could avail 100 per cent income tax exemption on their profits.
Introduced in the 1998 budget, the tax bonzanza for builders was aimed to promote mass housing. While that (mass housing) has not happened, purchasing a home has become a distant dream for prospective flat buyers. According to senior tax and real estate consultants, the government believes that with investments firming up in the realty sector, the sector does not need incentives.
“Officials also believe that with the market forces determining property pricing, a correction is inevitable,” said the consultant.
“Anway, it is an open secret that unlike in other sectors, developers have not passed on the benefits of the tax rebate to end-users. If one looks at property prices over the past eight-nine years, it has only been rising steadily.”
Realty experts say there is another reason why the act should be scrapped. Developers are known to have the local planning authority approve building plans showing flats less than 1,000 sq-ft in order to avail of the tax concession.
“But to the end-user, he shows a plan having a much bigger area (two flats are combined into one) and which he sells at a hefty premium. And with end users not knowing of this rule, the developer gets away without paying taxes,’’ a planner said, adding that developers in the city make a cool 100 to 200 per cent profit on the sale of each flat.
Though the land prices have increased only in the past few months, developers have been making a cool 100 to 150 per cent profit on each sale. According to National Housing Bank data, in the past, the government has not been able to meet its target of housing for low income groups, in 1999-2000, against a target of 44,000 LIG units, only 27,000 were constructed while in the economically-weaker section (EWS) category, against a target of 96,571 units, only 28,541 were built.
A section of real-estate experts though believe that the Act should be granted extension despite its unsuccessful tenure. Says Ambar Maheshwari, head (Investment Advisory) with global real estate advisors DTZ said: “All this while, developers were not making flats of 1,000 sq-ft, such projects are not lucrative as when compared to large luxury apartments.
With high interest rates and reduced supply of luxury apartments affecting sales, the overheated property market is showing signs of sluggishness. This will make a lot many developers turn their focus to constructing low-cost houses.’’
Real-estate developers may be in for some bad news. The Central government is debating on whether or not to extend the income tax benefits under Section 80-IB of the Income Tax (IT) Act beyond March 31, 2007. Under this section, developers constructing residences up to 1,000 sq-ft in Mumbai and Delhi and 1,500 sq-ft in other cities could avail 100 per cent income tax exemption on their profits.
Introduced in the 1998 budget, the tax bonzanza for builders was aimed to promote mass housing. While that (mass housing) has not happened, purchasing a home has become a distant dream for prospective flat buyers. According to senior tax and real estate consultants, the government believes that with investments firming up in the realty sector, the sector does not need incentives.
“Officials also believe that with the market forces determining property pricing, a correction is inevitable,” said the consultant.
“Anway, it is an open secret that unlike in other sectors, developers have not passed on the benefits of the tax rebate to end-users. If one looks at property prices over the past eight-nine years, it has only been rising steadily.”
Realty experts say there is another reason why the act should be scrapped. Developers are known to have the local planning authority approve building plans showing flats less than 1,000 sq-ft in order to avail of the tax concession.
“But to the end-user, he shows a plan having a much bigger area (two flats are combined into one) and which he sells at a hefty premium. And with end users not knowing of this rule, the developer gets away without paying taxes,’’ a planner said, adding that developers in the city make a cool 100 to 200 per cent profit on the sale of each flat.
Though the land prices have increased only in the past few months, developers have been making a cool 100 to 150 per cent profit on each sale. According to National Housing Bank data, in the past, the government has not been able to meet its target of housing for low income groups, in 1999-2000, against a target of 44,000 LIG units, only 27,000 were constructed while in the economically-weaker section (EWS) category, against a target of 96,571 units, only 28,541 were built.
A section of real-estate experts though believe that the Act should be granted extension despite its unsuccessful tenure. Says Ambar Maheshwari, head (Investment Advisory) with global real estate advisors DTZ said: “All this while, developers were not making flats of 1,000 sq-ft, such projects are not lucrative as when compared to large luxury apartments.
With high interest rates and reduced supply of luxury apartments affecting sales, the overheated property market is showing signs of sluggishness. This will make a lot many developers turn their focus to constructing low-cost houses.’’
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