Amidst the global economic slowdown, coronavirus pandemic, and increasing trade tensions between countries, Finance Minister Nirmala Sitharaman presented the Union budget 2020 woven around themes like Aspirational India, Economic development (for all) and Building a caring society that is humane and compassionate.  

The budget was termed as disappointing by many analysts and industry experts as it failed to throw light on some key issues plaguing the real estate and home decor sector, which not only stares at a piling stock of inventory and sluggish demand but also fewer avenues to raise cheap capital. 

However, below are a few noteworthy topics that were addressed in Budget 2020 pertaining to the Home decor and Furnishing market as well as Real Estate.

1. Infrastructure

Presenting the Union Budget 2020-21 in Parliament, Sitharaman said the focus is on infrastructure for economic development and 6,500 projects across sectors such as housing, safe drinking water, access to clean and affordable energy, healthcare for all, etc under National Infrastructure Pipeline (NIP) envisions ease of living for citizens. Rs 100 lakh crore would be invested in infrastructure over a span of the next five years. 

In my opinion, the investment in infrastructure should have been more as it plays a pivotal role in the development and transformation of the economy but nevertheless the mission of “housing for all” under the Pradhan Mantri Awas Yojana is on track to be completed in this year, 2 years before the deadline. 

Expected Rise in Investments in Indian Infrastructure for Development

2. Kitchenware

In a bid to encourage domestic companies, Finance Minister announced a hike in the customs duty on a variety of products ranging from tableware and kitchenware to electrical appliances, footwear, furniture, stationery, and toys. 

The main reason for this could be attributed to increasing the demand for Indian made products that are facing stiff competition from foreign-made goods due to the cheap and low-quality imports which cause hindrance to the growth of Indian MSMEs. Special attention has been taken to put measured restraint on the import of those items which are being produced by our MSMEs with better quality. 

Fancy crockery will now be available at lavish prices as custom duty rises on ceramic kitchenware! A Corelle dinner set worth Rs 5,000 may require you to pay about Rs 500 more, i.e a 10% hike in the customs duty. 

10% Hike in Imported Crockeries

3. Furniture and Home Decor items

Customs duty on import of mattress, sofa bed, LED lights and furniture has been increased. Furnishing your dream home with IKEA’s imported mattress costing about Rs 51,990 may now require you to shell out about Rs 54,349 which is about a 4.3% increase in the price.

The government is also strengthening provisions relating to safeguard duties (applied when a surge in imports causes serious injury to the domestic industry), dump goods and imports of subsidized goods for ensuring a level playing field for the domestic industry.  

This will subtly motivate some of the MNC’s to start exploring to shift manufacturing base to India. For manufacturing and export from India, availing the refund of federal duties including electricity duties is a positive development. 

Hike in Home Decor and Furniture

4. Housing loan

For the fulfillment of the goal of ‘Housing for All’ and affordable housing, in the last budget Finance Minister had announced an additional deduction of up to Rs 1.5 lakhs increasing the total deduction to up to Rs 3.5 lakhs for interest paid on loans taken for the purchase of an affordable house. This deduction was allowed on housing loans sanctioned on or before 31st March 2020. 

In order to ensure that more persons avail of this benefit and to further incentivize affordable housing, Sitharaman proposed to extend the date of loan sanction for availing this additional deduction by one more year. Besides, she has also proposed to extend by one year the date of approval of affordable housing projects for availing of the tax holiday on profits earned by builders.

5. Personal Income tax and simplification of taxation

Lowering of income tax rates with the removal of exemptions may not lead to any meaningful boost to consumption. However, the removal of 70 exemptions under the new income tax regime, implying no tax benefit on principal and interest for home loans would be a dampener for the sector.

House rent allowance and Housing loan interest which was previously allowed as a deduction can no longer be claimed under the new tax regime.

However, the new tax regime shall be optional for the taxpayers. An individual who is currently availing more deductions & exemption under the Income Tax Act may choose to avail them and continue to pay tax in the old regime.

In order to provide significant relief to the individual taxpayers and to simplify the Income-tax law, FM proposed to bring a new and simplified personal income tax regime. But this backfired, as the new tax regime has only complicated the procedure even further.

Impact on taxpayers: 

Below is an illustration showing how the new tax regime will affect the tax outgo of taxpayers at different income levels.

ParticularsOld Tax Regime (with deductions)New Tax RegimeOld Tax Regime (with deductions)New Tax Regime
Income15,00,00015,00,00030,00,00030,00,000
Deductions/ Exemptions2,00,000*Nil4,25,000**Nil
Taxable Income13,00,00015,00,00025,75,00030,00,000
Tax2,02,5001,87,5005,85,0006,37,500
Cess @ 4%8,1007,50023,40025,500
Total tax2,10,6001,95,0006,08,4006,63,000

* Deductions assumed: Rs 1.5 lakh under Sec 80C; Rs 50,000 standard deduction

** Deductions for Rs 30 lakh, Rs 60 lakh, Rs 1.2 crore: Rs 1.5 lakh under Sec 80C; Rs 50,000 standard deduction; Rs 25,000 under Sec 80D; Rs 2 lakh home loan interest under Sec 24.

Could have, Would have and Should have

With the upcoming Budget 2020, there was an opportunity presented to the government to acknowledge the challenges in the retail sector and take proactive steps to steer the economy towards a higher growth track. But the government did not meet the expectations of the public especially homeowners.

Owning a home is a basic need and not a luxury. Due to the hurdles faced by homeowners in the context of tax and regulatory environment, the affordability and liquidity are being curtailed. As a result, it becomes difficult to purchase a home. 

In the current scenario, Section 80C of the Income Tax Act does not provide for a focused benefit on housing. There are several property options for homeowners, but they are compelled by the absence of exclusive tax benefits on the principal amount of home loans to delay home purchase decisions and in doing so affect sales.

“Apart from affordable housing and Personal Income Tax (PIT) relief, no major benefits came in for resolving the current housing mess. For instance, a hike in the `2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act could have kick-started healthier demand for housing, especially in affordable and mid-segment categories.” said Anarock Property Consultants chairman Anuj Puri.

Interior design, decor, and furnishing are one of the most integral aspects of owning a house. But with GST rate @ 18%, it curbs the homeowners from spending extravagantly in building their dream home. The GST rate could have been slashed from 18% to 12% at least.

This would assist in improving demand alongside the new tax regime. There needs to be more disposable income in the hands of the homeowners to be able to spend more since personal income tax rates alone will not aid affordability for the consumer.

Another factor is an increase in the customs duty on furniture, electrical appliances, kitchenware, and tableware. An increase in the import duty on paper and other inputs increases the cost of the product.

If we want to have a ‘Make-in-India’ stamp, then the costs of getting quality material should be contained. While there is a need to revive our economy, import duties on many needs to be re-considered.

To Sum it up

While the Union Budget did impress most economists and experts, homeowners would find this budget rather disappointing due to the aforementioned reasons. With the new budget in action, most of the home decor items will become expensive.

A mere one-year extension for the housing loan approval and tax holiday benefit is too less of an incentive to increase demand and spending. The property sector had demanded measures to enhance credit availability for developers, industry status and other measures that could propel sales. But it did not find a mention in the budget speech.

The proposed cut in personal tax rates that mostly will enhance the purchasing power of the middle class and continuation of tax sops for affordable housing announced in the budget failed to enthuse real estate stocks as share prices of Godrej Properties, Oberoi Realty Ltd., and DLF Ltd. and Prestige Estates took a dip after the announcement of budget 2020.

In India, the home design and decor industry is booming at an alarming rate. It has shifted from being the rich’s one and only conserve and has made its way into the growing urban Indian middle-class families. 

This has also correlated with the share of integrated retail in this sector rising from 5 percent to 10 percent. For a $20BN industry with an 8 percent CAGR, this is truly remarkable as it is just the start. This sector has a lot to do, and a great potential to expand.

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