In today's real estate market, builders and developers often struggle with unsold properties that are held as stock-in-trade. Section 23(5) of the Income Tax Act provides for a notional rental income to be taxed on such unsold properties after a prescribed period. This can be a significant burden for developers who are struggling to dispose of their stock in a sluggish market.
One of the main issues faced by builders and developers is the difficulty in disposing of unsold properties due to various practical issues. The restriction on the number of self-occupied properties to two is also a major hindrance for the real estate industry. It is suggested that the restriction on the number of self-occupied properties may be relooked and revisited.
It is also suggested that Section 23(5) be amended to exclude provisions for deemed rental income and tax on unsold properties after two years of property construction. This would provide relief for genuine developers who are unable to dispose of their stock in a slump.
In addition, it is suggested that Real Estate business entities be exempted from the provisions of Section 23(5) and 71(3A) for at least five years. This would provide an opportunity for builders and developers to dispose of their unsold properties without being subject to the notional rental income tax.
Furthermore, it is suggested that the time limit for construction of a house under Section 54 and 54F be increased from 3 years to 5 years. This would provide more flexibility for builders and developers to complete construction and dispose of their unsold properties.
Lastly, it is suggested that provisions of Section 72A allowing set off of unabsorbed losses and unabsorbed depreciation be allowed to the real estate sector. This would enable consolidations and mergers and provide relief for the real estate industry. Overall, the above suggestions aim at reducing the tax burden on builders and developers and provide relief for the real estate industry.