“Ask a common man, ask a poor man. They have a dream to own a house and the Government can help them fulfil that dream,” Modi said in his post-budget comments televised on national TV.
Expectations from budgets are always galore, with the wishlist running into endless pages. However, Finance Minister Arun Jaitley faced an uphill task of striking a fine balance between high hopes and fiscal prudence. Moreover, hopes related to one’s house have always caused anxiety among individuals of all strata.
This budget provides the much-needed impetus to strengthen the housing sector and boost the Government’s dream of ‘Housing for All by 2022’, by giving the first home-buyers and affordable house-seekers something to cheer for.
To augment the supply of affordable homes, Jaitley proposed 100% deduction for profits to an undertaking from a housing project for flats measuring 30 sq metres in four metros and 60 sq metres in other cities. However, the deduction would be applicable on the projects approved during June 2016 to March 2019, and completed within three years of the approval. Minimum Alternate Tax (‘MAT’) would, however, apply to these undertakings.
Builders and real estate experts say this exemption would bring in a 15-20% upside on profits for a developer after paying MAT, making it easier to attract foreign and domestic investment for housing projects.
The FM also proposed service tax exemption on construction of affordable houses up to 60 sq metres under any Government scheme.
These steps will likely boost private-sector participation in the Government’s Pradhan Mantri Awas Yojana that targets ‘Housing for all’, as developers have been asking for incentives to launch more affordable housing projects that are aimed at mid and lower income groups and offer thin margins.
First time home buyers have reason to be thrilled, with the FM proposing a deduction of Rs 50,000 for interest on loan upto Rs 35 lakh, where the cost of house is not more than Rs 50 lakh. The loan in this regard should be financed between April 1, 2016 to March 31, 2017. Presently, the deduction of interest payable on a self-occupied house is allowable to the extent of Rs 2 lakh. This move will take the overall deduction benefit to Rs 2.5 lakh.
Furthermore, the FM also proposed a standard deduction of 30 per cent against the amount received on account of unrealised rent while computing the house property income.
It has also been proposed that the deduction of interest on loan for construction/acquisition of a self-occupied house property shall now be allowed if such construction/acquisition is completed within five years in place of three years earlier. So now if your builder doesn’t give you the possession of your dream house within the promised three years, sweat not.
For individuals, not having their own house and also not getting House Rent Allowance from employer, deduction for the rent paid enhanced from Rs 24,000 to Rs 60,000.
The industry players have termed this budget as positive for the housing sector, saying that the tax sops for the first time buyers and incentives on development of affordable housing projects will help spur demand in the sluggish property market.
Overall, considering the global fragility, volatile financial markets and a ‘cocktail’ of geopolitical risks, the Government seems to have done justice by delivering a budget, which looks balanced and prudent. PM Modi’s goal to ensure that India remains a beacon of hope by being on a growth path that matches its potential seems to be on track.
The author is senior tax professional – People Advisory Services, EY (Views expressed are personal)