Make rentals tax free

[ TIMES NEWS NETWORK ]
Confederation of Real Estate Developers Associations of India (CREDAI) in its pre -budget memorandum to the finance ministry suggested measures to make real estate an attractive investment option reports Times Property Team

CREDAI in a proposal to finance ministry on Thursday emphasised on promoting housing as a viable ‘investment’ alternative for attractive rental income. Also there is a greater need to promote housing for low income group on war footing,the memorandum said.

In order to achieve this, CREDAI said that incentive should be provided by way of deduction of 20% of the investment made in the housing sector from taxable income. By allowing this benefit, the note said, the expected loss of income-tax collection will be made-up by increased collection from indirect taxes The proposal also suggested that rental income from newly constructed let out houses, with the area of each unit not exceeding 150 sq. metres, be exempted from income tax at the rate of 100% for first 5 years and 50% for next 5 years.

Confederation argued that dividend or interest income from infrastructure projects is fully exempt for investors under section 10(23G). Similarly, return on investments in shares and mutual fund units is also exempt under section 10(34) and 10(35), though under section 115O dividends bear a nominal tax at the rate of 10%.Thus there would be nothing unusual if complete exemption is provided to the rental income to promote new housing, argued the note.

Real estate not overpriced

Ramani Sastri
[ TIMES NEWS NETWORK ]
The housing industry in India has been struggling along since independence. The government has to be blamed for the current state of affairs, so too the builders and developers. The time has come to take stock of the situation and act immediately. Several experts including the McKinsey Group, educational institutes and builders’ associations have proposed various ideas and plans for the housing industry.

The problems are numerous, the solutions are obvious and clear, but the choices are difficult and few. The advantages of implementing these changes far overcome all the negative and political issues, which have kept the problems dormant for so long. India does not have any option, but to act strongly and immediately. This will provide the impetus to get the Indian economy back on the track for a double-digit growth.

With growing international pressure for stricter environmental policies, Indian government appears to be coming down heavily on the building industry with its new environmental clearance requirements for construction projects. The recent law passed regarding environmental clearances of construction projects is a case in point. In July 2004, the Ministry of Environment and Forests issued a notification requiring all new construction projects, including townships, settlement colonies, commercial complexes, hotel complexes, hospitals and office complexes for 1,000 persons or discharging sewage of 50,000 litres per day to get clearance from the Ministry.

Industrial estates of 50 hectares,sanctioned projects that have only reached plinth level of construction and industrial estates where construction has not begun or where less than 25% of the sanctioned cost has been spent also need to obtain the clearance. The environment clearance is a mandatory process but the long procedure of getting the clearance not only delays the project, but also increase the cost of implementing the entire project. This is a hindrance in the entire system which finally affects the developers involved in the project.

The present contribution of the housing construction industry in India is small when compared to developing and developed nations. This sector contributes only 1% of GDP in India, as compared to 3 to 6% in other developing countries. If the above issues are addressed and the economy were to grow at 10% a year, the housing sector would grow at 14% a year and create over 3.2 million new jobs over the next 10 years.

Liberalise MF investment abroad
TIMES NEWS NETWORK[ TUESDAY, NOVEMBER 15, 2005 12:48:16 AM]

Another degree of freedom

The move of the high level committee on capital markets to liberalise foreign investment by Indian mutual funds (MFs) is welcome. It will give stifled MFs more choice. The approval also provides the Sebi, RBI and government the opportunity to harmonise rules relating to overseas investments by individuals and on individuals’ behalf by MFs and other institutional investors.

As of now, individuals have the option of investing in a scheme launched by a domestic fund for overseas investment. They also have the option of using the $25,000 remittance scheme to take direct exposure to foreign stocks, other financial assets and even real estate.

Strangely, while MFs are allowed to invest in only stocks of those companies that have an equity holding of at least 10% in a listed Indian company, organisations promising access to US listed stocks under the $25,000 scheme claim that no such restrictions apply to individual investments abroad.

Ordinarily, one would have expected it to be the other way round, MFs being considered the preferred vehicles for retail investors. The removal of the restriction on MFs will therefore also bring these different categories on par.

Concerned authorities also need to review the current informal ban on the sale of foreign MF products in India. News reports point out that various banks were in the past stopped from offering international funds in India. The ostensible reason was the fear that investors would be at risk since these foreign products may not conform to Indian regulations. Clear guidelines are needed on this issue.

Also, it makes sense for individuals wanting to invest abroad to access global products in India through their local affiliates. Local funds should, effectively, be able to have sub-accounts or other suitable integration with global players. A variety of global investment avenues will provide both diversification and choice, besides easing India’s forex burden.