ET Wealth spoke to various developers and experts in the real estate sector and here’s what they say homebuyers want from Budget 2023.
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Increase in tax deduction limit on home loan interest under Section 24 (b)
Currently, homebuyers can claim an income tax deduction on the interest paid on their home loan under Section 24 (b) of the Income-tax Act, 1961. The maximum amount of deduction that can be claimed is Rs 2 lakh per financial year for a self-occupied property.
“There is an express need for more tax sops for home buyers as well as investors. The tax rebate on housing loan interest under Section 24 (b) needs to be hiked to at least Rs 5 lakh. This will add momentum to housing demand, particularly in the affordable segment,” said Anuj Puri, Chairman, ANAROCK Group.
Do note that the maximum deduction limit has remained the same since FY2016-17.
“The government should incentivise people to buy more properties. The prices of houses have increased, and interest rates have also increased in the last few years. The nation has seen a 6-7 per cent inflation rate over the years. Now, the tax saving of a cap of Rs 2 lakh Section 24 (b) on housing loan should be increased,” Akhil Gupta, Co-Founder, and CTO, NoBroker.com to ET Wealth.
Separate tax deduction section on principal repayment of housing loans other Section 80 C
Homebuyers can also claim income tax deductions on the principal repayment of their home loan under Section 80C of the Income Tax Act. The maximum amount of deduction that can be claimed is Rs 1.5 lakh per financial year. However, various deductions for other investments such as Public Provident Fund (PPF), equity-linked savings schemes (ELSS), life insurance premiums, and Sukanya Samriddhi Account are clubbed under Section 80C of the Income-tax Act, 1961. Experts are now demanding to increase the tax deduction limit of Section 80C to provide some relief to home loan borrowers.
“At present, Section 80 C of the Income Tax Act does not provide for a focused benefit on home loans.
As investors have numerous investment alternatives to choose from and the lack of exclusive tax benefits on the principal amount of home loans makes them indifferent toward a house purchase. A separate annual deduction of Rs 150,000 for principal repayment will improve housing affordability and provide the much-needed fillip to opt for home loans,” said Shishir Baijal- Chairman & Managing Director, of Knight Frank India.
Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE, told ET Wealth, “It is recommended that this be increased to at least Rs 4 lakh per annum. This tax deduction can also be entirely moved out of Section 80C since it gets clubbed with other instruments such as LIC, PPF, etc.”
“It is important to increase the tax subsidy on housing loans for both the principal and interest from its historical level of Rs 2 lakh and Rs 1.5 lakh. An increase in an existing tax deduction for home loans will offset the increased EMI burden and leave some surplus to spend and boost the Indian economy,” said Shrikant Shrivastava, chief risk officer, of IMGC (India Mortgage Guarantee Corporation).
Tweak in the affordable housing price band
The current price band of Rs 45 lakh for a property to be considered under affordable housing is not appropriate in most of the cities in India, mentioned experts.
“For instance, a price band of Rs 45 lakh or below is far too low in a city like Mumbai, where it should be increased to Rs 85 lakh or more. In other major cities, the qualifying price band should be increased to Rs 60-65 lakh,” Puri said.
“The government should seriously consider revising the price bandwidths for homes to qualify as affordable housing to align with the market dynamics of different cities,” said Puri.
“Redefining affordable housing is long due considering the change in the housing sector in the last few years. The size of units as per the current definition (60 sq. m. carpet area in urban centers) is fairly appropriate but a price band of up to Rs 45 lakh for affordable housing is not appropriate across most cities in India,” said Raj Khosla Founder and MD – MyMoneyMantra.com.
So a revision in the affordable housing price bank will help more houses to qualify under affordable housing and more homebuyers could avail of the present benefits such as reduced GST at 1 per cent without ITC, and other government subsidies said, experts.
Relaxation of capital gains criteria to support homebuyers
Under Section 54 of the Income-tax Act, long-term capital gains from sales of the existing house can be utilized in buying or constructing a new property. If the investment for exemption is done through an under-construction property, it can be claimed only if the construction of the property is completed within three years of the sale of the earlier house.
“Residential projects are continuously increasing in scale in terms of the number of units, height, and amenities which causes them to have completion timelines in excess of three years. Also, while the implementation of RERA has caused an improvement, the completion timelines of under-construction projects frequently exceed deadlines. This causes significant hinderances to homebuyers in setting-off capital gains in under-construction properties. To mitigate this, we recommend that the completion timeline of under-construction properties be extended to five years instead of the existing three,” said Shishir Baijal- Chairman & Managing Director, of Knight Frank India.
In addition, the cap of Rs 2 crore on capital gains for reinvesting in two properties should also be removed, said Magazine.
