Budget 2026: Powering urban India - the structural forces reshaping real estate

By Adarsh RankaIndia’s real estate sector continued its growth momentum in 2025, reaffirming its position as a core pillar of the country's economic expansion. Currently contributing nearly 8% to GDP, the sector is projected to contribute 15-16% by 2047, aligning with India’s vision of “Viksit Bharat”.

The Budget reinforces this trajectory through infrastructure-led development, policy & tax reforms, though some sector-specific expectations remain unaddressed.Key Policy AnnouncementsProposal to monetize public sector real estate assets through dedicated REITs is expected to unlock value from idle assets, deepen institutional participation & enable efficient capital recycling across the sector.The government has reiterated its commitment to Tier 2 & Tier 3 cities, including temple towns, by allocating INR 5,000 crore over 5 years per City Economic Region. This is likely to stimulate urbanisation beyond metros & drive housing demand.Another notable thrust is on industrial & logistics corridors, supported by development of university townships integrating research institutions, skill centres & residential infrastructure.

This integrated approach is expected to boost employment generation while creating demand for commercial & residential real estate.Further, development of dedicated rail freight corridors, textile & chemical parks will have positive spillover effects on industrial real estate, warehousing & allied infrastructure.Key Tax UpdatesIncome from House PropertyFor self-occupied properties, prior-period interest on housing loans continues to be deductible in 5 equal installments after construction completion.

This prior-period interest has now been aligned with the Old Regime, with the overall interest deduction capped at INR 2 lakh per annum.TDSResident individuals & HUFs purchasing property from non-resident sellers can now deduct TDS by quoting PAN without the requirement to obtain a TAN. Buy-backConsideration received on buy-back of shares will now be taxed as capital gains instead of dividends, with entitlement to capital loss on the cost of shares.

However, promoters will be subject to an additional levy, resulting in higher effective tax rate for them.Compulsory AcquisitionThe Budget aligns income-tax provisions for compulsory acquisition of land under Right to Fair Compensation & Transparency in Land Acquisition, Rehabilitation & Resettlement Act, 2013, bringing clarity & consistency.Minimum Alternate Tax (MAT) MAT has been proposed to be reduced from 15% to 14%. For domestic companies continuing under the old tax regime post March 31, 2026, MAT paid will be treated as final tax liability, with no new MAT credit generation.

Existing MAT credit as on March 31, 2026 will not be available for set-off unless the company transitions to the new regime.Companies migrating to the new regime during or after FY 2026–27 will be allowed to utilise MAT credit, subject to set-off capped at 25% of normal tax liability per year & carry forward permitted for 15 years from the date of generation.Other Key updates/ implicationsThe MAT amendments are designed to encourage migration to the new tax regime.

However, as REIT unitholder dividend exemptions remain linked to SPVs under the old regime, REIT managers will need to carefully evaluate the cost-benefit implications.The Budget also promotes foreign investment in Indian data centres by introducing a tax holiday for foreign companies until March 31, 2047 on income from procuring data centre services from specified Indian facilities. Services to Indian users must be routed through an Indian reseller entity.Additionally, the government has proposed the convergence of the Income Computation and Disclosure Standards (ICDS) with Indian Accounting Standards (Ind AS) through a joint Ministry of Corporate Affairs (MCA)–Central Board of Direct Taxes (CBDT) committee, along with a comprehensive review of the Foreign Exchange Management Act (Non-Debt Instruments) Rules to align them with India’s evolving economic priorities.Carry-Forward ExpectationsEven as the reforms strengthen the sector’s overall framework, certain areas could be candidates for future refinement, including affordable housing incentives, interest deduction limits under the new regime, sector-specific relief for hospitality and tourism, and flexibility in ITC utilisation for leased assets.Overall, the Budget presents a largely positive outlook for the real estate sector, driven by infrastructure expansion, regional development & tax rationalisation. The government’s proactive engagement with industry stakeholders throughout the year rather than relying solely on annual budget announcements offers optimism that pending sectoral expectations may be addressed as India progresses toward its Viksit Bharat 2047 vision.(Adarsh Ranka is Partner and National Real Estate Leader, Member Firm of EY Global)