Budget 2025 expectations: Priorities for infrastructure and real estate sectors

By Neetu Vinayek

Budget 2025 expectations: The infrastructure and real estate sectors are poised to be key catalysts in propelling the nation's economy toward the ambitious ViksitBharat @ 2047 vision. Recognizing their importance, in Union Budget 2.0 for 2024, the government has underscored its commitment by allocating a robust annual budget of Rs. 11.11 lakh crores for infrastructure development across the country.

Despite the real estate sector being largely fuelled by private investments, from residential developments to industrial and commercial spaces, the infrastructure domain remains predominantly reliant on government capital expenditure. This is highlighted by the fact that from 2019 to 2023, the government's share of investment in infrastructure was a substantial 78%, in contrast to the private sector's 22%.

The modest private sector investment can be attributed to substantial capital requirements, slow land acquisition processes, and extended periods before realizing returns. Borrowing norms for traditional debt and high-interest rates further compound the challenge of meeting funding needs. To mitigate these issues, the previous budget introduced viability gap funding, although a mere Rs. 500 crores were earmarked for this purpose. For the fiscal year 2025-26, there is an expectation for a considerable increase in budgetary support to incentivize private sector engagement. Additionally, the government may introduce a framework for Variable Capital Companies as proposed in the previous budget.

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The infrastructure sector often sees divestment of projects or undertakings through slump sales to interested parties. While the Union Budget 2.0 for 2024 adjusted the holding period for long-term capital assets to 24 months, benefiting from lower capital gains tax rates, the period for business undertakings in slump sales remains at 36 months. Similarly, pension funds and sovereign wealth funds must adhere to a three-year holding period to qualify for long-term capital gains exemptions, with the current investment deadline set at March 31, 2025. The upcoming Budget 2025 is expected to align the holding period for slump sales and extend the investment deadline for such funds by five years, enhancing the sector's appeal to private investors.

The shipping industry expects that The Coastal Shipping Bill, 2024, and The Merchant Shipping Bill, 2024, currently pending approval are enacted which consequentially boosts India's maritime competitiveness and coastal waterways.

On the real estate front, while private investment continues to drive growth, further impetus could come from a reduction in stamp duty rates, as recommended to state governments. The sector also anticipates revisions to long-standing tax policies, including the re-instatement of tax holidays for affordable housing, the allowance of GST Input Tax Credit for property leasing, and a re-evaluation of the GST treatment of Transferable Development Rights (TDRs).

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In summary, the Union Budget 2025 is expected to introduce reforms and announce simplified income-tax law either through new code or rationalisation and simplification of existing provisions; the objective being giving comfort of Ease of Doing business in India & encouraging participation of private sector in long gestation projects, reforms and announcements aimed at bolstering private participation in the infrastructure and real estate sectors, potentially through strategic tax amendments and investment incentives.

(The author, Neetu Vinayek, is Tax Partner (Infrastructure), EY India. Jasdeep Sahni, Director-Tax, EY India and Shashank Jain, Senior Tax Professional, EY India also contributed to the article. Views are personal.)

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