The Union Budget 2019 needs to solve practical challenges faced by homebuyers due to factors like uncertainty over project approvals, construction delays and completion hassles.
By Parizad Sirwalla
Budget 2019: The first Union Budget by the re-elected government is reason enough for the common man to have many expectations from a housing sector perspective. Several schemes under affordable housing and tax incentives for homebuyers, were introduced during the said term to provide necessary impetus to the housing sector. Therefore, it is expected that the new finance minister would continue with the slew of measures to incentivise homebuyers and boost investor confidence, in the forthcoming Union Budget.
Increase in interest deduction in case of self-occupied property
Currently, the income deduction towards interest paid on home loan, on a self-occupied property, can be claimed up to maximum of Rs 2 lakh per annum (p.a). This limit is quite low vis-à-vis cost of borrowed capital which has increased manifold over the years. Therefore, such limit can be revised to Rs 4 lakh p.a.
Relaxation in restriction of set-off of loss from house property
Set-off of loss under the head ‘income from house property’ against any other head of income is restricted to Rs 2 lakh p.a. Any excess loss is not entitled to be set-off in the current financial year and can only be carried forward for eight succeeding years. This restriction has affected thousands of homebuyers who have availed a home loan in the past (i.e. prior to FY18) based on then prevelant provisions. This restriction should either be withdrawn or relaxed, say, up to Rs 5 lakh p.a. This can help increase the demand for investment in an additional house property as an income-yielding asset and also aid in disposal of current inventory.
Deduction for pre-construction period interest payment
Currently, deduction on home loan interest paid towards an under-construction property is allowed in five equal installments starting from the year of completion of the construction of the property. However, such deduction is included within the overall deduction limit of Rs 2 lakh, leaving limited room to claim deduction of the current year’s interest paid. Also, the deduction of home loan principal repayment is within the overall limit of Rs 1.5 lakh under Section 80C.
A separate deduction for pre-construction interest payment as well as principal repayment of home loan may be introduced to help generate tax savings which may be invested in new houses.
Clarity on date of acquisition for under-construction properties
In the absence of express mechanism under the Act to arrive at the date of acquisition of a house property, it has been a vexed issue over the years, especially for under-construction properties. There has been a plethora of judicial precedents with different interpretations on the date of acquisition of property—i.e., either date of possession, property registration, date of making majority payment, etc. To simplify matters, it may be good to provide specific provisions under the Act to arrive at the date of acquisition to avoid ambiguity.
Extend period for completion of under-construction properties
A homebuyer can claim an exemption for long-term capital gains if he invests the capital gains/sale proceeds to buy/construct another property within specified timelines. However, such exemption is not available if the construction is completed beyond three years. This condition potentially penalises a home-buyer for reasons beyond his/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, as also held in various judicial precedents.
While progress has been made to incentivise investments in the housing sector, the common man continues to experience some practical challenges, due to multiple factors like uncertainty regarding project approvals, construction delays, completion hassles, etc. While the Interim Budget provided some relief, there is more ground to be covered.
(The writer is partner and head, Global Mobility Services-Tax, KPMG in India)