Is housing really infrastructure?

Feb 16 2013, 09:28 IST
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SummaryA long-standing expectation of the real estate sector is the coveted infrastructure tag.

home buyers. Easier financing options will help to bring down home prices and ensure timely completion of the projects. This will be hugely beneficial to consumers and help to address the housing shortage of 18.78 million households existing in the country, says Brotin Banerjee, MD & CEO, Tata Housing Development Company.

Problem of definition

But how is this status to be brought about? According to a report by the Secretariat for Infrastructure, Planning Commission, there exist multiple definitions of infrastructure.

The report quotes a 2001 report of the National Statistical Commission headed by Dr C Rangarajan that defined six characteristics of the infrastructure sector: natural monopoly, high sunk costs, non-tradability of output, non-rivalness (up to congestion limits) in consumption, possibility of price exclusion (whereby enjoyment of benefits is contingent on payment of charges), and bestowing externalities on society.

Based on these features, the Rangarajan Commission has classified certain activities as infrastructure: railway tracks, signalling system, stations, roads, bridges, airports, power generation, transmission and distribution, telecom networks, pipelines and canals etc.

The Income Tax Act has its own definition of what constitutes infrastructure for the benefit of tax breaks under Section 80-IA: electricity, water supply, sewerage, telecom, roads & bridges, ports, airports, railways, irrigation, storage at ports and industrial parks/special economic zones.

A taxing exigency

With a multitude of official definitions in existence, what do developers imply when they ask for grant of infrastructure status?

Basically developers are asking for tax breaks and cheaper and easier funding when they are asking for infrastructure status. Frankly, these ends can be met by other means also without actually classifying housing as infrastructure, says Pankaj Bajaj, president, CREDAI-NCR and MD, Eldeco Properties.

The tax benefits imply those available under Section 80-IA, where income from infrastructure projects is exempt from income tax subject to conditions.

The other benefit that was available to developers was under Section 80-IB, which gave a tax holiday for housing construction subject to conditions, that would end this fiscal.

The conditions were that the area of the plot be at least 1 acre and the housing unit having a maximum built-up area of 1,000 square feet within the city limits of Delhi and Mumbai and 1,500 square feet elsewhere.

The tax holiday under the Act is available only for construction of affordable housing or residential houses of small sizes. Most citizens still do not own houses and demand exceeds supply resulting in perpetual increase of real estate prices.

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