Budget 2018: The government’s Housing for All by 2022 is an ambitious mission and paves way for robust growth in the real estate and housing sector. The Budgets presented in the last couple of years have aimed to provide impetus to the housing sector by introducing various measures.
Budget 2018: The government’s Housing for All by 2022 is an ambitious mission and paves way for robust growth in the real estate and housing sector. Against this backdrop, the Budgets presented in the last couple of years have aimed to provide impetus to the housing sector by introducing measures like affordable housing scheme under Pradhan Mantri Awas Yojana and tax incentives for first-time home buyers. Implementation of Benami Transactions (Prohibition) Amendment Act, 2016, and Real Estate (Regulation and Development) Act, 2016, with effect from November 1, 2016, and May 1, 2017, respectively, are major reforms. Yet the common man continues to face challenges, due to factors like uncertainty regarding project approvals, construction delays, completion hassles, etc. Thus, it is expected that Budget 2018 should continue the momentum and incentivise home buyers’ confidence by rationalising key income tax provisions further. In this background, let’s look at the key expectations of the common man from the Budget on the personal tax front.
Increase in interest deduction in case of self-occupied property: Income tax deduction for interest paid on housing loans, on a self-occupied property, can be claimed up to Rs 2 lakh per annum. This limit is low vis-à-vis cost of borrowed capital, which has increased manifold. Such limit can be revised to at least `3 lakh per annum to provide a helping hand to both the housing industry and home buyers.
Relaxation in restriction of set off of loss from house property: Finance Act 2017 provided that, from FY18, set-off of loss under the head ‘income from house property’ against another head of income should be restricted up to Rs 2 lakh per year. In other words, amount of loss under this head exceeding Rs 2 lakh will not be entitled to be set-off and can only be carried forward for eight succeeding years. It affects thousands of home buyers who availed housing loan based on the prevalent provisions of the Income-tax Act, 1961, on set-off. In the interest of home loan borrowers and provide impetus to real estate sector, this restriction should either be withdrawn or relaxed, say up to Rs 5 lakh per annum. Or, the restriction should apply only to loss arising on account of interest payable on loans availed after March 31, 2017. This will help increase the demand for investment in a second house property as an income-yielding asset and also facilitate disposal of current inventory.
Separate deduction for pre-construction period interest payment and housing loan principal repayment: The deduction available on home loan interest paid towards an under-construction property is allowed in five equal instalments starting from the year of completion of the construction of the property. But such deduction is included within the overall deduction limit of Rs 2 lakh (in case of a self-occupied property), leaving limited room to claim deduction of the current year’s interest paid. On account of an unforeseen delay in completion of construction by the developer, the interest paid during pre-construction period can become very high. Also, an individual is eligible to claim deduction in respect of home loan principal repayments within the overall limit of Rs 1.5 lakh per annum prescribed under section 80C of the Act for various tax saving instruments/expenditure, leaving little room for any additional savings. The Budget could introduce a separate deduction for pre-construction interest payment as well as principal repayment of home loan to help generate tax savings which may be invested in new houses.
ALSO WATCH: Budget 2018 To Focus On Infrastructure, Look At Private Capital To Fund Affordable Housing
Enhanced benefit to first-time home buyers: Section 80EE of the Act provides additional deduction of Rs 50,000 to first-time home buyers whose housing loan was sanctioned during the period April 1, 2016, to March 31, 2017. This deduction should be extended to first-time home buyers with loans sanctioned beyond March 31, 2017, as well. Also, one of the conditions to avail this deduction is that the value of the property should not exceed `50 lakh. However, an individual who buys a house in tier 1 and 2 cities where property prices are much higher than this limit does not benefit from this deduction. It is essential to take into account ever increasing inflation in such cities including the size and location of the house property and fix limits accordingly.
Increase in period for completion of under-construction properties: A home buyer can claim an exemption against long-term capital gains if she invests such capital gains/sale proceeds of one house property/other long-term capital asset to purchase/construct another property in India within specified time-lines. But such exemption is not available if the construction is completed beyond three years. This condition potentially penalises a home buyer for reasons beyond her control as there could be delay in construction for varied reasons. It may be considered to either extend this period to five years or provide for exemption even in case construction is completed beyond three years for reasons beyond the control of buyer.
Clarity on date of acquisition for under construction properties: There are certain tax provisions that are linked to the period of holding of a property (for example, classification as long-term, short-term, capital gains exemption time limit, etc). In the context of under-construction properties, this is a very subjective aspect considering the varied prevailing practices as well as different schemes offered by builders/developers. There has been a plethora of judicial precedents with different interpretations on the date of acquisition of property—date of possession, property registration, date of making majority payment. To simplify matters, it may be good to provide an express mechanism to arrive at the date of acquisition. While progress has been made to incentivise investments in the housing sector, there is room for more ground to be covered. It will be interesting to see how the finance minister does a balancing act between fiscal consolidation objective and the aspiration of the common man to own their dream home in reality.