The countdown for Union Budget 2021 has started, and there are suggestions from all and sundry, including the homebuyer community. From a separate provision for deduction of ‘principal repayment’ on home loans to additional tax benefits under Section 24 and 80C, prospective homebuyers look forward to multiple incentivising schemes from the Finance Minister in the upcoming Budget 2021.
The COVID-19 induced mayhem helped us realise the importance of home. However, with considerable job losses, failing businesses, financial breakdowns and stricter lending norms imposed by banks and Housing Finance Companies (HFCs), a lot changed for prospective homebuyers after March 2020. Many either cancelled their bookings or deferred their homebuying plans in the wake of the market uncertainty. While the reduced repo rates and the extension of Credit Linked Subsidy Scheme (CLSS) until March 2021 were a few announcements in the right direction and ensured marginal demand recovery, the industry believes that many other booster shots are required to motivate customers.
A few expectations of homebuyers from the upcoming Budget 2021 are:
Tax benefits on home loan interest rates
Deduction on home loan interest available under Section 24 should be made applicable from the year the capital was borrowed under Section 80C and should be to the extent of full interest paid. In case this is not possible, the Government must atleast raise the limit for owner-occupied houses from Rs 2 lakh to Rs 5 lakh.
Amit Goenka, MD and CEO, Nisus Finance
According to Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory, “The tax benefit for home loan interest announced in the previous budget now takes the tally to Rs 3.5 lakh under Section 24 (b) and Section 80EEA for homes within Rs 45 lakh. The same shall extend for housing units costing up to Rs 1 crore to benefit the middle-class customers in metro cities.”
- In case of first-time homebuyers, the Government must extend the deduction period under Section 80C for principal repayment of home loan sanctioned until March 2021 to March 2022. Also, the deduction limit should be increased from the existing Rs 1.5 lakh, and this should be considered as a separate or standalone exemption.
- The CLSS benefits under Pradhan Mantri Awas Yojana (PMAY) should also be protracted by a year to March 2022.
- Tax apprehensions of working professionals shall be addressed by revisiting the existing tax slabs and increasing the deduction limit under Section 80C.
Income from house property
The Finance Minister should amend Section 24(b) of the Income Tax Act, 1961 to remove five years limit for claiming a deduction on interests from Income from House property. This is because in many cases, the possession is provided after five years, and homebuyers are unable to claim the entire benefit of Rs 2 lakh. Besides, the Government should also see that the deduction is applicable from the year of procuring the loan and not from the possession date.
Capital gain from sale of house property
The Government must revisit Section 54 of ITA to exempt Capital Gains Tax (CGT) if the sale proceeds are invested in three or more housing properties across India. At present, capital gains from the transfer of any immovable asset, whether it is a building or land or a residential house, are exempted if the sale proceeds are channelised in acquiring/constructing two residential properties anywhere in India. Such a restriction is deterrent to the objective of boosting housing demand and hence needs to be repealed.
Homebuyers who faced job loss or salary cuts post the COVID-19 debacle, shall be allowed a deduction for EMI or rent whichever is higher from their Gross Total Income under a separate section. This facility should be there at least for a year.
Also, developers who delayed the project deliveries by over three years should be penalised and asked to reimburse homebuyers with an amount equal to EMI/Rent (whichever is higher) paid during the previous year. This will compel developers to fast track project completions and restore the homebuyers’ faith into the realty sector.
Amendments in Section 80IBA
Increasing the budget limit of affordable housing units under Section 80IBA is vital, particularly in metro cities. Currently, the cost of units measuring 60 sq m in metro cities and 90 sq m in non-metro cities should not exceed Rs 45 lakh. This is a significant deterrent as, given the high land cost in metro cities, especially Mumbai, it is challenging for developers to create dwellings within the restrained budget. Due to this, while there is maximum demand for affordable homes in Tier 1 markets, the supply is far below. Therefore, the Government must contemplate on this factor and dispense away the troubling norms.
Broadly, these measures are not only in the interest of homebuyers, but real estate sector as a whole as increased housing demand implies increased construction, more job opportunities, and improved benefits to developers and the overall economy. Industry stalwarts believe that these measures are a sure shot prescription to take the sector past its blues. However, it remains to see what gets incorporated and what is dodged when the Finance Minister Nirmala Sitharaman announces the Union Budget on February 1, 2021.