Moumita Bakshi Chatterjee
Sarbajeet K. Sen

New Delhi , Sept. 25

TO give a fillip to the rental housing market, including service apartments, the draft National Housing and Habitat Policy, 2005, has proposed income-tax sops on renting out new properties to a flat 10 per cent during the first five years.

"For encouraging rental housing, including building of service apartments, fiscal concessions in the form of imposition of a flat rate of 10 per cent of tax on the income on renting of new properties for the first five years and depreciation allowance of 50 per cent on investment made by employers in the housing projects for employees would be provided," the draft, spearheaded by the Ministry of Urban Employment and Poverty Alleviation, has said.

At present, while the tax on income from renting of new properties is pegged at about 30 per cent, a standard deduction of 20 per cent on rentals is allowed towards maintenance.

This means that on an income of Rs 1 lakh from a rented property, given the standard deduction of 20 per cent, the taxable income would come to Rs 80,000.

With the imposition of a 30 per cent levy, the tax payable stands at Rs 24,000.

"The rate of return, in case of residential rentals, works out to about 2.5 per cent. Whereas, commercial rental returns are close to 10-12 per cent.

A fiscal concession would encourage people to buy houses for renting.

On the other hand, a higher depreciation rate of 50 per cent would allow employers to build houses for employees (in their tax planning)," Mr Pranav Ansal, Chairman, Ansal Township and Projects Ltd, said.

Service apartments: Terming service apartments as a nascent market waiting to take off in India, he said that his company is embarking on one such project around Delhi.

Serviced apartments (or corporate housing) are exclusive, fully furnished apartments or executive homes.

They are an alternative to hotel accommodation, especially when one is being relocated between homes or is working away from home for some time.

Mr Kumar Gera, President of the Confederation of Real Estate Developers' Association of India, said, "People invest their money and savings into good options.

"One option is to park the money in an apartment, which can then be rented out. If there are tax breaks, a lot of money will get pumped into rental housing.

"In the US, people sometimes purchase the whole building and offer it on rent.

"There are companies, which are in the business of renting apartments. The rent that comes in can be used for the repayment of debt taken to purchase the property."

He said that India needs a large stock of rental houses, as a growing number of young and mobile consumers are moving from one city to another with their jobs.

"If there is an exponential increase in the rental housing stock in the country, it would also help bring down rental rates," he said.

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