The Budget should increase the tax benefit on loan repayment of second house to `3 lakh, increase the ceiling on capital gains investment and expand the basket of eligible investments.
Over the past few years, the government’s Budget declarations and reform stratagems have focused on affordable housing, encouraging first-time home buyers and cleansing the sector of black money. In line with the government’s aim to provide ‘housing for all’ by the year 2022, the 2017 Budget proved to be an enthralling one for the Indian real estate sector, as it was centred around these issues and directed to mend sentiments and increase sales which were majorly impacted by the demonetisation drive.
However, the sector continued to be under stress in the continued sluggish market conditions so much so that demand for housing projects have still not picked up. Thus, longing for stability, certainty and strength for the real estate sector, real estate developers and homebuyers expect a lot from Budget 2018.
Real estate inventory
The Finance Act, 2017 provided to tax on notional basis, real estate developers, who are not able to sell their inventories within one year from the end of the financial year in which the completion certificate is received. In view of the genuine hardship faced by real estate developers, the government could either consider withdrawing the amendment or increasing the exempt period of one year.
Budget 2017 provided that set-off of loss under the head “income from house property” against any other head of income shall be restricted to Rs 2 lakh for an assessment year. Balance loss, if any, can be carried forward to be set off against house property income of subsequent eight years. An increase in this limit to Rs 3 lakh shall incentivise investment in real estate.
Interest on housing loan
Interest on housing loan paid while a house is under construction, can be claimed as a deduction in five equal instalments from the financial year in which it is completed. However, for self-occupied house, taxpayers fail to take the benefit of deduction for pre-construction period interest since it is included in the overall limit of Rs 2 lakh. Deduction for pre-construction interest should be allowed in the year of payment or a separate limit should be given for deduction over regular deduction of Rs 2 lakh per year.
The government can look at enhancing limit for investment of capital gains under Section 54EC, which is currently limited to capital gain bonds issued by NHAI, REC, etc. Inclusion of mutual funds into the basket of eligible investments with lock-in period of 3-5 years would channelise money from real estate into capital markets. Further, ceiling for investment could be enhanced from the present limit of ` 50 lakh to `100 lakh, considering the spurt in property prices and resulting capital gains.
The common man is also looking forward to getting a relaxation in the time period fixed for construction of house property for the purposes of Section 54 and 54F. Completion of construction projects often crosses deadlines and individuals lose out on tax incentives for apparently no fault of theirs. The time limit of three years set for construction of residential dwelling, to claim tax relief under Sections 54 and 54F should be increased. Even the time limit for completion of construction of house so as to claim deduction of interest on housing loan is also not enough. These time limits need to be enhanced considerably.
Section 80EE allowed additional deduction of `50,000 for first-time home buyers if loan was sanctioned from April 1, 2016 to March 31, 2017. However, the condition to avail the deduction is that the value of property should be less than `50 lakh and the loan amount should not exceed `35 lakh. Ideally, the cap of `50 lakh should be raised significantly.
The author is managing partner, Nangia & Co LLP