While there is little new in the budget for the real estate developer, the retail investor will indeed be the beneficiaries of his proposed largesse.The proposed changes are:

If you have borrowed money to purchase a home on or after April 01, 1999 and the possession of your house has already been handed over to you, or will be delivered to you before the first day of April 2003, and the dwelling unit is or will be utilised for self-occupation, then you will be entitled to deduct the actual interest amount paid by you to service your housing loan to the extent of Rs 1.50 lakh in the assessment year 2002-03.

This means that the tax-deduction limit unlike in the previous years is proposed to be raised not only for the new borrowers, but also for the existing ones.

It may be recalled that while Finance Act 2000 had prescribed this limit at Rs 75,000, the same limit vide Finance Act 2001 had been raised to Rs 1 lakh.

It, therefore, follows that all borrowers who have secured their housing loans on or after April 01, 1999 will benefit from this proposed amendment to Section 24 of the Income Tax Act.

In order to encourage the growth and development of rentable housing, stock proposals embodied in the Finance Bill propose to increase standard deduction in respect of income derived from house property under Section 25B of the Income Tax Act from 25 per cent at present to 30 per cent with effect from April 01, 2001.

The present practice of first deducting from property income the incidence of property taxes paid during the previous year, and then availing the tax rebate as prescribed under Section 22/23 of the Income Tax Act shall continue. In order to make transfer of property less cumbersome, Mr Sinha has also proposed that the requirement to secure Section 230A clearance in Form 34 be deleted because in any case high-value properties will continue to be subject to Section 269 UA clearance (commonly referred to Form 37 (I) clearance).

Presently, the sellers of all properties valued at Rs 5 lakh or more are required to secure this clearance from their respective Income Tax assessing authorities.

However, this requirement is proposed to be dispensed with from April 1, 2001.

There is no change in the level and nature of deductions available to home buyers under Section 88 of the Income Tax Act under which the limit specific to repaying of housing loan's principal amount remains unaltered at Rs 20,000. However, it has also been proposed in the Finance Bill that salaried employees in receipt of income below Rs 1 lakh per annum will be able to claim and avail tax deductions at the rate of 30 per cent in respect of payments effected by them that qualify for Section 88 deduction.

Presently, the rate of deduction on the qualifying amount is 20 per cent of the amount so deposited.

This is likely to benefit small house buyers. With the changes proposed above the effective tax-free borrowing capacity of home buyers (based on prevailing rate of interest of 13 per cent per annum) will stand increased to about 11.50 lakh with the effective interest rate of 8.84 per cent for highest tax slab borrowers.

However, the interest rates are definitely likely to move south because of the measures already initiated by the Reserve Bank of India (RBI) in cutting the Inter Bank Lending Rate and the CRR to 7 per cent and 8 per cent respectively.

With the ushering in of the low interest rate regime signaled by cut in the government administered Provident Fund and small savings interest rates by 1 per cent to 1.5 per cent effective from March 01, 2001, the banks are likely to also cut their FDR interest and prime lending rates (PLR). Since the government banks and their housing finance companies offer floating rates of interest that are pegged to their PLRs, reduction in their home loan lending rates is imminent.

This would not only mean cheaper finance for the borrower, but also higher borrowing limits that would result in purchase of bigger and better quality houses. All this is not withstanding the expectation that the Reserve Bank of India (RBI) will soon come up with another cut in inter-bank lending rate and the CRR requirement and if this happens then further cut in housing finance company (HFC) lending rates would ensue.

The key to low-cost lending lies not only in pious desire of the housing finance companies offering cheaper finances but is directly related to their ability to raise cheaper resources either from banks and public or through debt securitisation and reducing their non-performing assets. Following changes in the National Housing Bank Act last year, the HFCs have been hoping that the debt securitisation and foreclosure laws would not only be simplified but also made more stringent. Mr Sinha in his budget speech has acknowledged this need and assured that the necessary legislation will be cleared during the budget session itself. However, the industry's wish list that it should be given specific allocation for low-cost borrowing through banks under their priority lending scheme does not find a place in the finance minister's budgetary proposals. Similarly their demand for increased allocation for banks' incremental deposits from the existing three to five per cent seems to have been overlooked.

On the other hand, the HFC receivable will now become subject to service tax and this could somewhat reduce their capacity to lend at low rates of interest. However, Mr Sinha indeed has taken note of the cost-push pressures that the construction industry will have to face following increased demand for rebuilding from Gujarat and cartelisation by cement manufacturing companies that has resulted in raising the cement selling prices in the past two months.

Therefore in a bid to discipline the industry he has cut import duty on cement from 35 per cent to 25 per cent.

In the final analysis it promises to be a good budget for the prospective house buyers and this could indeed help revive the construction industry.

One also hopes and prays that the states don't delay enactment of their own land management laws and ensure that adequate developed land is made availableto ensure that land and property prices do not rise.

Housing looks up