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Small home tax sops need relook


Small home tax sops need relook

Last updated: January 22 2007
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  • Small home tax sops need relook

    The 2007-08 Budget will have to address the provision of 80-IB (10), which offers I-T exemption on profit made by developers, while constructing small houses of less than 1,000 sq ft in Delhi and Mumbai and 1,500 sq. ft in other cities. The provision will lapse on March 31, 2007.

    If FM P Chidambaram allows the provision to lapse, the construction of small size apartments in the private sector will suffer. This will hike cost of small apartments, mostly bought by middle-class and weaker sections.

    According to a survey by MagicBricks, a realty portal of the Times of India group, and Credai (Confederation of Real Estate Developers Association of India), 72% of the developers said if the provision is withdrawn, they would reduce the construction of number of such apartments. 28% of the respondents said if the provision is withdrawn, they would exist small apartments segment.

    Financial returns from premium segment apartments are higher than that from the small apartments. According to the survey, the input cost in construction of small apartments is 15% higher than that for the premium segment.

    Also, per square feet price of the premium segment apartments is higher than that of the small apartments. Therefore, considering business logic, developers would like to construct only premium segment apartments.

    But, demand for the small apartments from the middle class is very strong. According to the urban development ministry, demand for apartments from lower-income group and weaker section is 13.5 million as against 1.14 million in the higher-income group and 1.56 million in the middle-income group.

    Therefore, to attract private investments in small apartments, government had extended tax sops on profit from construction of small apartments. But as the exemption will lapse in March, 2007, many builders expect the government to extend it further. The survey says 43% of the respondents are yet to avail of the incentive.

    As many developers have gone to smaller cities, they are planning to avail this exemption. As government has not been able to meet its targets of providing shelters to weaker section, a consultant said, it should continue the sops to boost investment.

    80-IB (10) — which provides tax exemption to developers constructing small houses — will lapse on March 31, 2007. If the provision is not renewed, it will lead to price hike

    With profits from premium segment being higher due to 15% less input cost, builders prefer to construct premium apartments only

    It will affect demand coming from middle and lower income group, which is estimated at 15.06 million
    Source from Times of India
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