Budget 2026 expectations for India’s real estate: A path to ‘Viksit Bharat’ – The Times of India

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Budget 2026 expectations for India's real estate: A path to 'Viksit Bharat’

Reintroduce tax holiday for affordable housing with a tweak that the eligibility for affordable housing should be based on size of flat rather than value. (AI image)

By Adarsh RankaIndia’s real estate sector continued its strong growth trajectory in 2025, reinforcing its position as a core pillar of the country’s economic expansion.Government-led reforms continued to strengthen transparency and efficiency. Key measures included digitized registration systems, single-window construction approvals, unified RERA dashboards and simplified compliance norms. These interventions reduced delays, improved accountability and encouraged wider institutional participation. Complementary policy frameworks such as Gati Shakti, National Logistics Policy and Data-center incentives supported growth in non-traditional asset classes.The sector currently contributes nearly 8% to national GDP and is expected to contribute 15% to 16% to national GDP by 2047 towards our vision of “Viksit Bharat”. It would need support from the direct tax and indirect tax policies of the government during this journey.

Budget expectations for Real Estate Sector

Given the government’s objective of housing for all some of the expectations that could be looked at –

reintroduction of tax holiday for affordable housing with a tweak that the eligibility for affordable housing should be based on size of flat rather than value
Need for increasing the interest tax deduction from Rs 2 lakh to at least 5 lakhs and allowing set-off of loss from the house property under new tax regime
Need to re-introduce additional interest tax deduction on loan for certain house properties (which had a sunset in FY2022)
point of taxation deferred to obtaining CC for landowners being individuals and HUFs, for area share joint development arrangements. In absence of provisions for corporate landowners, there are conflicting views on point of taxation (i.e., upfront vs deferred). Need to provide comprehensive yardstick for determining point of taxation and provide guidance for computation of taxable income in case of upfront taxation
while computing tax fair value of equity shares, income tax law provides for substitution of book value of immovable property with stamp duty value (SDV). There are conflicting views that deeming provisions extend to leasehold rights/ development rights (which differ from freehold land and building). Need to clarify that SDV referencing should not apply to leasehold/ development rights
Need to introduce targeted tax incentives to encourage greater investments in the hospitality and tourism sector, given the government’s ongoing push to promote tourism sites nationwide,
while the credit linked subsidy scheme (‘CLSS’) which had expired in 2022 was revamped under PMAY U 2.0 bringing a renewed version of the CLSS it has been less incentivizing compared to the erstwhile CLSS. Providing further subsidy, increasing the limits under the revamped CLSS could be a great opportunity to enable EWS, LIG and MIG sections of society purchase houses or undertake modifications,
tax incentive for rental housing to promote it as important investment class and create more affordable rentals.

While the GST rate cuts on construction materials by the 56th GST Council was a welcome move, the real estate industry continues to seek clarity on long-standing issues which significantly influence housing and leasing costs. For example, reforming ITC eligibility for leased assets is not merely an industry demand but an essential step toward aligning GST with its core principle of tax neutrality, ensuring India’s continued attractiveness as a global business destination. The inability to claim ITC has significant financial impact on large-scale commercial infrastructure projects. This has a direct impact on setting up Data-center/ Global Capability Centers, mindset of foreign investors, startups and enterprises relying on cost-effective leasing options etc.Many countries, including the UK, Australia, and Singapore, allow ITC on commercial property construction, provided the asset is used for taxable supplies such as commercial leasing. India could benefit from a similar approach, ensuring tax neutrality and eliminating cascading effects. To mitigate concerns about excessive credit claims, the budget could provide for ITC to be allowed in equal instalments over four to five years and could be subject to reversal upon sale of the building, based on a predefined formula.An area of persisting ambiguity is the taxation of joint development arrangements. From taxability to valuation to timing of payment of tax, there is a pressing need to address the appropriate tax treatment of: