Budget may include opportunities for rebates and tax benefits to help boost the housing industry
Real estate has emerged as a preferred investment opportunity. Moreover, the increased interest rates have not dampened the sentiment of home buyers. However, in this budget, home buyers are demanding more relaxations and relaxations to avoid the double whammy of inflation and the possibility of a recession.
The Indian housing sector performed exceptionally well in 2022. This is because residential property sales are set to pick up in 2021, after a Covid-induced lull in 2020, and continue into 2022 as well. Many real estate consultants have also expressed surprise at how quickly the sector has recovered from the impact of Covid-19 and surpassed all expectations despite RBI increasing the repo rate by 225 basis points from April 2022 to December 2022. Gone.
Residential property sales to reach all-time high in 2022. This has led many to speculate that the housing sector will do well in 2023 as well. However, home loan borrowers are also worried about the impact of frequent repo rate hikes on floating rate loans like home loans. The impact of economic disruptions caused by geopolitical tensions and the sudden increase in the number of COVID-19 cases worldwide India as well. Tighter monetary policy in the US and India damaged supply chains and raised the cost of manufacturing raw materials, resulting in higher housing prices. With inflation showing its effect on the prices of daily essential commodities and there are fears of a return to recession after reports of recent skirmishes between various countries, further hike in rates by RBI cannot be ruled out. Homebuyers are currently hoping that Finance Minister Nirmala Sitharaman will provide some relief in the upcoming Union Budget 2023.
The upcoming discussions on the budget will help the government address various issues facing the Indian housing sector in 2023 and beyond. The budget may include opportunities through rebates and tax benefits to help boost the housing industry sector. Some of these include:
Additional support for affordable housing seekers
In recent years, the government has accorded priority to affordable housing, and its expansion is dependent on various incentives and policy provisions. The budget may also include increased funding for the Pradhan Mantri Awas Yojana, a government program that provides affordable housing to the urban and rural poor. Also, it may announce much-needed tax breaks for developers building affordable housing projects.
ease of land acquisition
Since independence, the country has been working on old laws. There is a need to lay the groundwork for doing away with impractical regulations and simplifying complex laws. The difficulty of acquiring land for development has plagued the housing sector for a long time. To streamline the land acquisition process, for example, the budget may simplify the process of obtaining land titles. Providing financial assistance to affordable housing developers for land acquisition would be another step in the right direction.
announce tax incentives
Under Section 24 of the Income Tax Act of 1961, homebuyers can currently claim income tax deduction for the interest paid on their home loan. There has been no change in the maximum deduction limit from 2016-17. For self-occupied property, the maximum deduction that can be claimed is Rs 2 lakh per financial year.
Investors and home buyers have been demanding more tax exemptions for the past several years. Section 24 tax credit for housing loan interest should be increased to at least Rs 5 lakh. This will increase housing demand, especially in the affordable segment.
The government has not done much to encourage people to invest more in real estate. This begets the need to offer incentives or come up with investor-friendly schemes that would encourage more people to allocate a greater portion of their earnings to real estate. Interest rates on loans have increased in proportion to the prices of residential properties. Inflation has raised its ugly head from time to time, increasing the prices of real estate, thus, underscoring the need to enhance tax benefits.
Introduce tax deduction on principal repayment of housing loans as an additional benefit
Under Section 80C of the Income Tax Act, homebuyers can also claim income tax deduction on the principal repayment of their home loan. The maximum deduction that can be claimed per financial year is Rs 1.5 lakh. However, there are other deductions such as Public Provident Fund, equity-linked savings schemes, life insurance premium and Sukanya Samriddhi account investments under section 80C of the Act. Home loan borrowers will be greatly relieved if the government either increases the tax deduction limit under section 80C or introduces tax deduction on home loan principal repayment as a separate benefit. Also, the increased tax deduction for home loans will reduce the increased EMI burden and leave some surplus to be spent, thereby boosting the Indian economy.
Easy capital gains norms to support home buyers
Long term capital gain from sale of existing house can be used for purchase or construction of a new house under section 54 of the Income Tax Act. If the exemption is claimed by way of a semi-constructed property, it can be claimed only if the property is completed within three years of the sale of the previous house. Also, the government should remove the cap of Rs 2 crore on capital gains for reinvestment in more than one property.
The idea of residential properties has changed a lot over the years. Housing projects are becoming increasingly large and complex in terms of amenities, design and look. A timeline of more than three years may be mandated to complete work on such properties. Seeing how the execution of RERA guidelines has improved, real estate builders need more time to work on those semi-finished projects. This makes it difficult for homebuyers to deduct capital gains on under-construction properties. It would be worthwhile if the time required for completion of real estate projects is extended to five years as against the existing time limit of three years.
Many people aspire to buy their own house. However, draconian laws and age-old taxation rules have always been more of a hindrance than a help. It is time to get rid of those redundant and irrelevant rules. The old must give way to the new.
(The writer is CEO and co-founder, Basic Home Loans)
read all latest business news Here