Budget PLUS 2013

Budget 2013- RE Impact

Budget PLUS 2013
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Budget PLUS 2013
Economic survey 201213:
Highlights:
After the global economic slowdown, caused
by the global financial crisis, the Indian
economy responded strongly to fiscal and
monetary stimulus and registered strong
growth of 8.6% and 9.3% in FY10 and FY11,
respectively. However the high inflation led the
RBI to tighten the monetary policy, adversely
impacting investments. Moreover, slowing
global economy due to the Euro crisis and
uncertainties about fiscal policy in the US, and
a weak monsoon has impacted Indian economy
adversely. As a result the Indian economy has
witnessed a slowdown in the past two years,
with GDP growth of 6.2% and 5.0% in FY12 and
FY13, respectively. The moderation in growth
has been due to weakness in industry which
registered growth rate of only 3.1% in FY13
while growth in manufacturing sector dipped
further to 1.9% in FY13. Services sector too
slowed to 6.6% in FY13 from 8.2% in FY12.
The savings rate has declined to 30.38% in
FY12 and investment rate has declined to
35.0% during the same period. Fiscal deficit as
a percentage of GDP has increased from 4.8%
in FY11 to 5.7% in FY12 and is estimated to be
5.1% in FY13 (which has been contained at
5.2%).
The Survey projects a growth rate of 6.1%-
6.7% for FY14 as possible reduction in policy
rates and easing of some of the regulatory and
financial impediments to investment due to
further moderation in inflation will encourage
investment activity and facilitate growth. The
survey has emphasized to restore domestic
balance and fiscal consolidation.

The following are some of the highlights
related to the real estate industry in the
survey:
Real estate (including ownership of
dwellings and business services) sectors
share in GDP was 10.8% in FY12. The
housing sector alone contributes
approximately 5.9% of Indias GDP.
The per capita net national income is
expected to increase from INR61,564 in
FY12 to INR68,747 in FY13, reflecting
11.7% growth.
In order to encourage Foreign Direct
Investment (FDI) inflow, FDI policies in
India have been continuously liberalized.
During April-November FY13, although
over all FDI inflows fell by 43.3% to
US$15.85 billion compared to the same
period in the previous year but net
portfolio flows including foreign
institutional investments (FII) increased by
77.6% (April-September 2012).
In FY12, FDI inflows to the services sector
(top five sectors including construction)
grew significantly at 57.6 % to US$ 12.1
billion compared to the growth of overall
FDI inflows at 33.6 %. However in FY13
(April-November), FDI inflows in the top
five services also fell by 9.7% to US$8.19
billion.
FDI inflows to the hotel and tourism sector
increased by 328% in FY13 (April-
November) over the corresponding period
in the previous year.
Tourism:
In India, the tourism sector has witnessed
significant growth in recent years even
though the world is witnessing slowdown
and economic crisis continues in Europe.
During the period 2008 to 2012, the
CAGRs of foreign tourist arrivals (FTA) and
foreign exchange earnings (FEE) from
tourism were 5.9% and 10.7%
respectively.
FTAs during 2012 were 6.65 million
reflecting a growth of 5.4% over 2011 and
FEEs in 2012 were US$17.7 billion
reflecting a growth of 6.8%. Domestic
tourism provided resilience to the sector,
with domestic tourist visits during 2011
being estimated at 851 million, with a
growth of 15%.
As per Tourism Satellite Account (TSA)
data 2009-10 the contribution of tourism
to Indias GDP was 6.8% and its
contribution to total employment
generation was 10.2%.
To promote tourism, the Government has
taken many policy initiatives including a
five-year tax holiday for 2, 3, and 4 star
category hotels located around UNESCO
World Heritage sites (except Delhi and
Mumbai) for hotels which start operating
between 1 April 2008 and 31March 2013;
an investment-linked deduction under
Section 35 AD of the Income-tax Act,
1961 extended to new hotels of 2 star
category and above anywhere in India,
allowing 100% deduction in respect of the
whole or any expenditure of capital nature
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excluding land, goodwill, and financial
instruments incurred during the year; and
inclusion of 3 star or higher category
classified hotels located outside cities with
population of more than 1 million in the
harmonized list of the infrastructure
subsector. To attract foreign tourists
coming to India for medical treatment, a
new medical visa category has been
introduced.
The survey has highlighted various
challenges which the sector is facing
including multiple taxes on hospitality-
and tourism-related activities and luxury
tax which is imposed by state
governments leading to high tariffs and
low occupancy in hotels.
Real estate housing Index:
The National Housing Bank (NHB)
launched NHB RESIDEX, a representative
housing price index (HPI) for select cities.
Residex, launched in July 2007, covers 20
cities and has been released with a
quarterly frequency from 2011-12, with
2007 as the base year. In the latest
survey, RESIDEX has been updated and
released for the quarter ended September
2012. The RESIDEX revealed that pace of
change of prices of residential properties
vary considerably across the cities,
though, property prices have moderated
in 2012-13. During the period 2007 to
2012, prices have increased in 9 cities
while 3 cities have witnessed a decline.
Maximum price rise was in Chennai (212%)
followed by Bhopal (106%) and Pune
(101%). Other cities which showed an
increase in prices with respect to base
year are Mumbai (98%), Kolkata (91%),
Ahmedabad (80%), Delhi (79%), Lucknow
(75%), and Patna (38%).
However, during the same period, three
cities have witnessed decline in prices
with maximum decrease observed by
Hyderabad (16%), followed by Jaipur
(15%), Bengaluru (2%).
Special Economic Zones (SEZs):
Since the notification of the SEZ Act in
February 2006, 579 SEZs have been
given formal approvals and 384 have been
notified. Total number of operational SEZ
in the country stands at 160 (3,308 units)
of which 93 are IT/ITES, 17 multi-product
and 50 other sector-specific SEZs. Total
employment through SEZ is provided to
945,990 people.
Physical exports from the SEZs have
increased from INR3,158 billion in 2010-
11 to INR3,645 billion in 2011-12,
registering a growth of 15.4%.
The total physical exports from SEZs in
the first half of 2012-13 was
approximately INR2,396 billion,
registering a growth of 36% over exports
in the corresponding period of the
previous year.
The total investment in SEZs till 30
September 2012 was approximately
INR2,187 billion, including INR2,147
billion in the newly notified zones.
Credit to real estate:
Due to moderation in inflation rates, RBI
has undertaken calibrated liquidity easing
measures which has decreased the
lending rates.
The y-o-y growth of bank credit by
scheduled commercial banks was 16.5% in
Q3 2012-13 while it was 16.37% in the
corresponding period of previous year.
Monetary policy started becoming a little
more accommodative in 2012-13 due to
moderation in inflation rates. The policy
rates were cut during 2012-13, including
reduction of 75 basis points (bps) in the
repo rate, a reduction of 100 bps in the
SLR, and 75 bps cut in the cash reserve
ratio (CRR). As a result, banks have been
reducing their deposit and lending rates.
The modal base rate of banks declined by
25 bps to 10.50 in 2012-13.
Gross bank credit to services sector
increased from INR9,395 billion in Q3
2011-12 to INR10,617 billion in Q3
2012-13.
With support from lending institutions,
housing credit has grown substantially
over the years, resulting in increased
market penetration. Total amount
outstanding against housing loans by
public sector banks was INR1,942 billion
in March 2012, 3.1% increase y-o-y.
The housing loan portfolio of scheduled
commercial banks and housing finance
companies the major institutional
players stood at INR6.1 trillion as at the
end of March 2012. However, due to
limited housing finance solutions and
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underdeveloped mortgage market, the
gap between housing demand and supply
is widening.
Affordable housing:
Government has taken several policy
measures for affordable housing segment.
Some of them are, allowing external
commercial borrowings (ECB) for low cost
affordable housing projects, increase in
investment linked deduction of capital
expenditure incurred in the affordable
housing projects, exemption from service
tax payments for construction services
related to residential dwellings, and low
cost mass housing up to an area of 60 sq.
m under the Scheme of Affordable
Housing in Partnership.
Government also Permitted the National
Housing Bank (NHB)/Housing Finance
Companies to avail ECBs to finance
prospective owners of low cost /
affordable housing units
A Credit Risk Guarantee Fund Trust,
managed by the NHB, was established on
1 May 2012, and will provide default
guarantee for housing loans up to
INR500,000 sanctioned and disbursed by
the lending institutions without any
collateral security or third party
guarantees and for new borrowers in the
EWS/ LIG category in urban areas.
Union Budget 2013
Policy measures:
Interest subvention scheme to be
extended to FY 2013-14, under which 1%
subvention is allowed on housing loans up
to INR 1.5 million, provided the cost of
house does not exceed INR 2.5 million.
Urban Housing Fund to be established
with an initial corpus of INR 20 billion to
mitigate the huge housing shortage in
urban areas.
Fund allocation for Rural Housing Fund,
which has been set up to refinance lending
institutions (including Regional Rural
Banks) has been increased from INR 40
billion to INR 60 billion.
SEBI to simplify procedures and prescribe
uniform registration and other norms for
entry of foreign portfolio investors.
Pension Funds and Provident Funds
permitted to invest in exchange traded
funds, debt mutual funds and asset
backed securities.
Broad principle laid out to distinguish FDI
from FII following international practice.
Broadly, foreign investment to be treated
as:
FII, where a foreign investor has a stake of
10 percent or less in a company; and
FDI, where a foreign investor has a stake
of more than 10 percent in a company.
Direct tax proposals:
No change in individual tax slabs except
for a minor relief of INR 2000 in the INR
0.2 million to INR 0.5 million slab
category. However, surcharge of 10% shall
be levied on individuals having income
exceeding INR 10 million.
Surcharge on domestic and foreign
companies where taxable income exceeds
INR 10 million but is less than INR100
million stands unchanged at 5% and 2.5%
respectively. However, where income of
domestic and foreign companies exceeds
INR 100 million, surcharge has been
increased to 10% and 5% respectively.
Increase in surcharge rates to increase the
effective rate of Dividend Distribution Tax
(DDT) on domestic companies from
16.2225% to 16.995% (inclusive of
education cess and surcharge).
Tax sops for affordable housing sector to
continue.
Rates of Securities transaction tax (STT)
amended as follows:
No STT payable by purchaser on purchase
of units of equity oriented fund (delivery
based);
STT on sale of units of equity oriented
funds (delivery based) reduced to 0.001%;
STT on sale of futures securities reduced
to 0.01%; and
STT on sale of units of equity oriented
fund to mutual fund reduced to 0.001%
Tax at the rate of 1% required to be
withheld by purchaser of an immovable
property, other than agricultural land,
while crediting or making payment to a
resident seller, if the consideration for
such immovable property exceeds INR 5
Budget PLUS 2013
million. This shall come into effect from
June 01, 2013.
Unlisted domestic companies to be subject
to additional tax at the rate of 20% (plus
education cess and surcharge) on the
consideration paid for buy back of its
shares as reduced by the amount received
by such company of issue of such shares.
This shall come into effect from June 01,
2013
Where the domestic company is liable to
pay such additional tax, income arising to
its shareholders on such buy-back to be
exempt from tax.
Dividend to be received by domestic
companies in FY 2013-14 from its foreign
subsidiary companies (in which it has
shareholding of 26% or more), continues
to be taxable at a lower tax rate of 15%.
Cascading effect removed in respect of
such dividends received by a domestic
company from its 51% or more equity
owned foreign subsidiary. This shall come
into effect from June 01, 2013.
Transfer of land or building (or both),
being stock-in-trade , to be taxed as
business income adopting the
consideration value to be higher of:
Stamp duty valuation of such transferred
land or building (or both); or
Actual consideration accruing or received
for such transfer
Gift taxation widened for individual/ HUFs
where immovable property received for a
consideration which is less than the stamp
duty value of such property by an amount
of INR 0.05milion. In such cases, the
difference between the stamp duty value
and the consideration would e subject to
tax.
Modified provisions of General Anti
Avoidance Rules (GAAR) to be introduced
w.e.f. FY 2015-16, to levy tax on
impermissible tax avoidance
arrangements.
Tax withholding rate for royalty and fees
for technical services payable to non-
resident increased from 10% to 25% (plus
education cess and applicable surcharge).
However, beneficial tax treaty rate shall
continue to be available.
It has been clarified that submission of
Tax Residency Certificate (TRC) by a
foreign company is necessary but not a
sufficient condition for claiming tax treaty
benefit.
Additional interest deduction of INR
0.1 million to individuals from their
taxable income on loans (sanctioned in FY
2013-14) up to INR 2.5 million for the
purchase of their sole residential house
property with a cost up to INR 4 million.
Work on formulation of Direct Taxes Code
(DTC) is still in progress. DTC to be a new
code which shall replace the extant
Income-tax Act, 1961 and has been
promised to be based on the best
international practices that will be
compatible with the needs of a fast
developing economy. The finance minister
without confirming the roll-out date,
mentioned that they shall try to table the
DTC bill in the parliament before the end
of the budget session.
Definition of agricultural land which is to
be considered as a Capital Asset has
been amended to include such agricultural
land which is within the prescribed
population size and specified distance
range, measured aerially, from any
municipality or cantonment boards.
Indirect tax proposals:
Reduction in abatement rate from 75% to
70% available on pre-construction sale of
residential units having carpet area of
more than 2000 sq ft or priced at INR
10 million or above. Effective increase in
Service tax rate from 3.09% to 3.71%
which should lead to an increase in price
of such units for ultimate buyer. Change
effective from March 01, 2013.
Increase in Excise duty rates on marble,
marble slabs, tiles from INR 30 / sq mt to
INR 60 per sq mt. May lead to a marginal
increase in input costs for developers as
no credit available. Change effective from
March 01, 2013.
Service tax exemption to general public
parking has now been withdrawn. Should
lead an increase in parking charges levied
across. Change effective April 01, 2013.
Penal provisions under service tax have
been made more stringent, with certain
offenses having been made cognizable.
Budget PLUS 2013
Such provisions to come into force from
the date on which the Finance Bill, 2013
receives the assent of the President.
One time amnesty scheme introduced in
Service tax with waiver of interest and
penalty. Applicable for Service tax not
paid and not disclosed in Service tax
returns from October 01, 2007 to
December 31, 2012.
The scheme will be operational from the
date on which the Finance Bill, 2013
receives the assent of the President.
No change in general Excise, Customs and
Service tax rate.



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