India's Real Estate Sector Maintains Strong Growth Momentum in 2025
India's real estate sector has continued its robust growth trajectory in 2025, solidifying its role as a fundamental pillar of the nation's economic expansion. The industry's performance underscores its critical contribution to the broader economic landscape, driven by progressive reforms and strategic policy interventions.
Government Reforms Enhance Transparency and Efficiency
Government-led initiatives have significantly strengthened transparency and operational efficiency within the sector. Key measures implemented include:
- Digitized registration systems that streamline property transactions
- Single-window construction approvals reducing bureaucratic hurdles
- Unified RERA dashboards providing greater accountability
- Simplified compliance norms easing regulatory burdens
These interventions have collectively reduced project delays, improved accountability mechanisms, and encouraged wider institutional participation. Complementary policy frameworks such as Gati Shakti, the National Logistics Policy, and Data-center incentives have further supported growth in non-traditional asset classes, expanding the sector's scope beyond conventional residential and commercial properties.
Sector's Economic Contribution and Future Projections
The real estate sector currently contributes approximately 8% to India's national GDP, demonstrating its substantial economic impact. Looking ahead, projections indicate this contribution could reach 15% to 16% by 2047, aligning with the vision of "Viksit Bharat" or Developed India. Achieving this ambitious target will require sustained support through both direct and indirect tax policies from the government.
Budget Expectations for Real Estate Sector
Given the government's commitment to "housing for all," several key expectations have emerged for the upcoming budget:
Tax Incentives for Affordable Housing
The industry advocates for reintroducing tax holidays for affordable housing projects, with eligibility criteria based on flat size rather than value. This adjustment would better target genuine affordable housing needs. Additionally, there is a pressing need to:
- Increase interest tax deduction limits from Rs 2 lakh to at least Rs 5 lakh
- Allow set-off of losses from house property under the new tax regime
- Reintroduce additional interest tax deductions on loans for specific house properties
Clarity on Taxation Timing and Valuation
For joint development arrangements, there is a need to defer taxation until obtaining completion certificates for individual and HUF landowners. Currently, conflicting views exist regarding corporate landowners, necessitating comprehensive guidelines for determining taxation points and computing taxable income in upfront taxation scenarios.
Regarding property valuation, while income tax law substitutes book value with stamp duty value for immovable property, clarification is needed that this should not apply to leasehold or development rights, which differ fundamentally from freehold land and buildings.
Support for Hospitality and Tourism
Targeted tax incentives could encourage greater investment in the hospitality and tourism sector, supporting the government's nationwide tourism promotion initiatives. This would create synergies between real estate development and tourism infrastructure growth.
Revamping Credit-Linked Subsidy Scheme
While the Credit Linked Subsidy Scheme was revamped under PMAY U 2.0, it remains less incentivizing than its predecessor. Enhancing subsidies and increasing limits under the revamped CLSS would significantly enable EWS, LIG, and MIG sections to purchase homes or undertake modifications. Tax incentives for rental housing could also promote it as an important investment class while creating more affordable rental options.
GST Reforms and Industry Concerns
Although the 56th GST Council's rate cuts on construction materials were welcomed, the industry continues to seek clarity on longstanding issues affecting housing and leasing costs. A critical area is Input Tax Credit eligibility for leased assets.
ITC Eligibility for Commercial Properties
The inability to claim ITC significantly impacts large-scale commercial infrastructure projects, affecting data centers, global capability centers, foreign investors, startups, and enterprises relying on cost-effective leasing options. Many countries including the UK, Australia, and Singapore allow ITC on commercial property construction when assets are used for taxable supplies like commercial leasing.
India could adopt a similar approach to ensure tax neutrality and eliminate cascading effects. To address concerns about excessive credit claims, the budget could allow ITC in equal installments over four to five years, subject to reversal upon building sale based on predefined formulas.
Taxation Ambiguities in Joint Development
Persisting ambiguities surround the taxation of joint development arrangements, particularly regarding:
- Transfer of Development Rights taxation
- Floor Space Index valuation
- GST impacts on area share versus revenue share models
There is a pressing need to address appropriate tax treatment across these areas, from taxability to valuation and payment timing.
The real estate sector's continued growth trajectory depends significantly on these policy clarifications and incentives. As India progresses toward its 2047 development vision, strategic support through tax reforms, GST clarity, and affordable housing initiatives will be crucial for realizing the sector's full potential as an economic powerhouse.
