India's Real Estate Sector Maintains Strong Growth Trajectory in 2025
India's real estate sector has continued its upward momentum in 2025, solidifying its role as a fundamental driver of the nation's economic progress. Currently accounting for approximately 8% of the Gross Domestic Product (GDP), the industry is forecasted to increase its contribution to 15-16% by the year 2047. This ambitious target aligns seamlessly with India's overarching vision of Viksit Bharat, a developed nation by 2047. The recent budget has reinforced this positive trajectory through a focus on infrastructure-led development and comprehensive policy adjustments, although certain sector-specific expectations were not fully addressed in this fiscal plan.
Key Policy Announcements Driving Sector Expansion
The government has proposed a significant initiative to monetize public sector real estate assets by establishing dedicated Real Estate Investment Trusts (REITs). This strategic move is anticipated to unlock substantial value from underutilized assets, enhance institutional involvement, and facilitate efficient capital recycling throughout the real estate market.
In a bid to promote balanced urbanization, the administration has reaffirmed its commitment to Tier 2 and Tier 3 cities, including prominent temple towns. An allocation of INR 5,000 crore over a five-year period per City Economic Region is expected to stimulate urban development beyond major metropolitan areas and subsequently boost housing demand in these regions.
Another notable emphasis is on the development of industrial and logistics corridors, supported by the creation of integrated university townships. These townships will combine research institutions, skill development centers, and residential infrastructure, fostering employment generation while simultaneously increasing demand for both commercial and residential real estate properties.
Furthermore, the advancement of dedicated rail freight corridors, along with the establishment of textile and chemical parks, is projected to have positive spillover effects on industrial real estate, warehousing facilities, and related infrastructure sectors.
Important Tax Updates Impacting Real Estate Investments
Income from House Property: For self-occupied properties, prior-period interest on housing loans remains deductible in five equal installments following the completion of construction. This prior-period interest has now been harmonized with the Old Regime, with the total interest deduction capped at INR 2 lakh per annum.
Tax Deducted at Source (TDS): Resident individuals and Hindu Undivided Families (HUFs) purchasing property from non-resident sellers can now deduct TDS by quoting their Permanent Account Number (PAN), eliminating the previous requirement to obtain a Tax Deduction and Collection Account Number (TAN).
Buy-back of Shares: Consideration received from the buy-back of shares will now be taxed as capital gains rather than dividends, allowing for capital loss claims on the cost of shares. However, promoters will face an additional levy, resulting in a higher effective tax rate for this group.
Compulsory Acquisition: The budget aligns income-tax provisions for compulsory land acquisition under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act of 2013, providing greater clarity and consistency in taxation matters.
Minimum Alternate Tax (MAT): MAT has been proposed for reduction from 15% to 14%. For domestic companies continuing under the old tax regime after March 31, 2026, MAT paid will be treated as the final tax liability, with no new MAT credit generation permitted. Existing MAT credits as of March 31, 2026, will not be available for set-off unless the company transitions to the new tax regime.
Companies migrating to the new regime during or after the financial year 2026–27 will be allowed to utilize MAT credits, subject to a set-off cap of 25% of the normal tax liability per year and a carry-forward period of 15 years from the date of credit generation.
Additional Updates and Implications for the Sector
The MAT amendments are strategically designed to encourage migration to the new tax regime. However, since REIT unitholder dividend exemptions remain linked to Special Purpose Vehicles (SPVs) under the old regime, REIT managers must meticulously evaluate the cost-benefit implications of these changes.
The budget also promotes foreign investment in Indian data centers by introducing a tax holiday for foreign companies until March 31, 2047, on income derived from procuring data center services from specified Indian facilities. Services to Indian users must be routed through an Indian reseller entity to qualify for this benefit.
Additionally, the government has proposed the convergence of Income Computation and Disclosure Standards (ICDS) with Indian Accounting Standards (Ind AS) through a joint committee involving the Ministry of Corporate Affairs (MCA) and the Central Board of Direct Taxes (CBDT). A comprehensive review of the Foreign Exchange Management Act (Non-Debt Instruments) Rules is also planned to align them with India's evolving economic priorities.
Future Expectations and Sector Outlook
While the current reforms strengthen the overall framework of the real estate sector, several areas remain candidates for future refinement. These include enhanced incentives for affordable housing, adjustments to interest deduction limits under the new tax regime, sector-specific relief measures for hospitality and tourism, and increased flexibility in Input Tax Credit (ITC) utilization for leased assets.
Overall, the budget presents a largely positive outlook for India's real estate sector, driven by infrastructure expansion, regional development initiatives, and tax rationalization efforts. 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.
