It is that time of year when anyone who makes a living writing about economics and finance in India rotates at least a few hundred words, advising the Minister of Finance on what to do with the central government union budget 2021.
This year, given the negative economic impact of the Coronavirus pandemic, many columnists, economists, journalists, and analysts have demanded that the Finance Minister spend and spend. The idea is that when the private sector (businesses and individuals) does not spend enough money, the government must become the spender of last resort and rescue the economy in the process.
But spending, spending and spending, without limitation, is nothing but lazy thinking. Rest assured that most people like me, myself included, have been guilty of this over the years.
So, to set the record straight this year, I thought I'd be more specific and talk about five things the government can do in union budget 2021 when it comes to real estate.
Let's see this point.
1) First, the real estate problem in India is the large number of closed houses. People buy houses they don't live in and keep them closed. In a country like India, this is criminal. By buying a house that you have no plans to live in and then keeping it closed, a lot of money is wasted in a country with a lack of capital. A closed house benefits no one.
In the past, suggestions have been made on how to tax gated homeowners on a hypothetical rent. I don't think this is the correct idea. The best idea is to get people to rent their houses. One way to do this is to tax rental income at a rate lower than the marginal rate. Suppose rental income is taxed at 10 percent, this can give an incentive for more people to open and rent their homes.
This will have multiple benefits. With more homes available for rent, many people will be saved from the stress of buying a home in these tough times, making life a little easier for them.
Second, the data clearly shows that when collecting cash payments, many landlords do not report their rental income as income. A lower tax rate can only encourage them to report income and pay taxes on it, which will help increase tax collection for the government.
Third, as more homes become available for rent, rents are likely to decline, leading to lower rental yields. The lower rental yield will mean less incentive to buy a new home, forcing builders to reconsider home prices, which they haven't seriously done yet.
Of course, this can be reviewed once the data is available for a few years.
2) In cities across the country, the central government owns the land, directly and indirectly, through public sector companies and other agencies. It doesn't use much of this land.
There has been talk of an inventory of this land. It is extremely important to speed up this process. In addition, the government should start the process of selling this land. This is not something that runs smoothly as no attempts have been made before. So some trial and error will be included. In addition to generating revenue for the government, this will also lower the price of land in cities, and is an important component in the construction of new real estate.
3) One of the main gaps in real estate in India is the lack of good publicly available data. In the United States, home construction is an important economic indicator that indicates the number of new privately owned homes that began construction in a given month. Now that every state has a real estate regulator, it is also possible to establish such a statistic in India. Since construction companies have to provide mandatory details on each new project, India is now in a position to publish a similar economic indicator.
The government must order one of the many research institutions it owns or funds, in Delhi, to mobilize to do so. Additionally, the central government also needs to collect data on home sales paid to state governments across the country.
These statistics will emerge as important economic indicators over a period of time, simply because a home is the most expensive thing a person buys in their life. So if home sales records are on the rise, it should clearly tell us that people feel more secure about their financial future. It is only when you feel secure about your economic future that you take out a mortgage loan.
Lastly, the government should also request the Reserve Bank of India (RBI) to publish more details of its home loans on a regular basis. Currently, the Reserve Bank of India (RBI) publishes outstanding mortgage loans to banks at the end of a given month. We also need data on the size and number of new home loans made by banks and home finance companies during the month.
This is not directly related to budget, but since many policy announcements are made at budget time, this may also be the case with these points.
4) For those who do not charge, the home rental tax deduction they pay is largely limited to Rs 5,000 per month or Rs 60,000 per year. This needs to be changed. As long as the rent is paid by bank transfer or check, a full tax deduction is required. The way the income tax law is structured on this issue, it discriminates against those who do not receive payment or do not have a housing rental allowance as part of their salary.
5) Finally, the Secretary of the Treasury in the budget speech should encourage state governments to reduce stamp duty on real estate transactions. He should also require state governments to reduce all other fees they charge for the construction and sale of real estate. The increase in transaction volume is likely to offset the decrease in taxes per unit of home sales.
This should lead to an increase in real estate activities in all states, while creating new jobs for the semi-skilled and the low-skilled, affected by Covid. As Thomas Sowell wrote in Controversial Articles: "When the investment is made ... the first money is spent on hiring people to work. Without that, nothing happens. The money comes out first to pay for expenses and then is returned as profit. ".
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