The proposal to provide additional deduction of up to `1.50 lakh for interest paid on loans availed till March 2020 to purchase a house valued up to `45 lakh could help revive the pent-up demand in real estate, as the move will encourage first-time buyers from middle and lower-middle income groups. This is in addition to existing interest deduction of `2 lakh on affordable houses.

Finance minister Nirmala Sitharaman said in her Budget speech, “I propose to allow an additional deduction of up to `1.50 lakh for interest paid on loans borrowed up to March 31, 2020, for purchase of an affordable house valued up to `45 lakh.”

It means that someone purchasing an affordable house will now be eligible for an interest deduction of up to `3.5 lakh, which further translates into a benefit of `7 lakh for home buyers over their loan period of 15 years. Under ‘Housing for All’, there is already a tax holiday on profits earned by developers of affordable housing. Besides, interest paid on loans on self-occupied properties carries a deduction of up to `2 lakh.

JLL India’s CEO and country head Ramesh Nair said considering a majority of home buyers fall in the lower and mid-income segments, this tax benefit will boost demand substantially. It will significantly benefit first-time home buyers. With effective interest coming down, it will increase eligibility for mid-income housing segments.

However, Nangia Advisors (Andersen Global) director Sandeep Jhunjhunwala said the qualifying condition of not
owning any house for availing additional deduction on interest may not augur well for housing demand. Besides, the
condition of stamp duty value of a residential unit to not exceed `45 lakh would pose another significant challenge for developers.

The government will continue to focus on affordable housing and plans to construct more units under the Pradhan Mantri Awas Yojna (PMAY). In the second phase of PMAY-Gramin, it aims to construct 1.95 crore homes till FY22, which will come fitted with amenities like toilets, electricity and LPG connections. It has completed a total of 1.54 crore rural houses in the past five years.

Under Pradhan Mantri Awas Yojna-Urban, over 81 lakh houses with an investment of around `4.83 lakh crore have been sanctioned, of which construction has started in 47 lakh houses. Over 26 lakh houses have been completed, of which nearly 24 lakh houses have been delivered to the
beneficiaries.