Budget 2017: Ever since coming to power, the Modi government has taken several policy initiatives to give a boost to the ailing real estate, following which the realty sector had of late even started showing some signs of revival.
Ever since coming to power, the Modi government has taken several policy initiatives to give a boost to the ailing real estate, following which the realty sector had of late even started showing some signs of revival. However, the government’s demonetisation drive again took the sheen off the sector, which is now betting big on the upcoming Budget for revival of fortunes.
Along with real estate, homebuyers too have pinned their hopes on the Budget as they believe that their dream homes are still beyond their reach and even tax incentives on home loans are inadequate. Therefore, unless some proactive measures are taken by the FM to make housing more affordable and induce buyers to buy homes, the government’s vision for ‘Housing for All by 2022’ will remain a dream only.
Here we are taking a look at homebuyers’ expectations from the upcoming Budget:
1. Bigger tax incentive for first-time home buyers
First-time home buyers were given additional Rs 50,000 tax exemption in the last Budget for a house worth up to Rs 50 lakh with a loan of up to Rs 35 lakh. This announcement mostly benefited end-users in tier-II, III cities, but not as many in the bigger metros where housing is largely above this specific limit. So, homebuyers, especially those residing in big cities, are expecting the upcoming Budget to bring in similar tax exemption for first timers in the metros too. Or, a higher limit specific only to the bigger metros should be introduced.
Also, middle class youth buying their first house in an affordable project should get additional income tax incentives for at least five years. “Given the lack of institutionalized rental housing in Indian cities, such a move could spur many fence-sitters into moving out from their rented apartments into owned houses. It could also make developers come up with products suiting this segment. In the previous Budget, no financial protection was offered to end users against project delays. This Budget can extend tax rebates in cases where projects get delayed due to bona fide reasons. All these efforts can help the government move closer to its dream of Housing for All by 2022,” says Anuj Puri, Chairman & Country Head, JLL India.
2. Higher tax saving on housing loan & house insurance premiums
Homebuyers are expecting tax benefits to be further relaxed. In fact, keeping in view the government’s agenda of providing housing for all, it is imperative that some tax concessions are provided in the Budget. “One such option could be to increase the tax deduction for interest paid on housing loan from Rs 2 lakh to Rs 3 lakh. This will also provide an immediate boost to the banking services sector, which is flush with funds post demonetization and looking at avenues to lend money to the masses,” says Vikas Vasal, National Leader-Tax, Grant Thornton India LLP.
The tax deduction limit for housing loans, especially for buyers in metropolitan cities, needs to be increased as the current limit of Rs 2 lakh is insignificant given the ticket sizes in cities, especially in bigger metros like Mumbai, where an overwhelming majority of the available housing is priced at, or above, Rs 1 crore. “The tax exemption limit should be auto-set to match inflationary trends in a financial year. Also, tax concessions on house insurance premiums could be introduced to encourage end users to insure their homes,” says Puri.
Some tax experts also believe that people having a single home need to be allowed to deduct the entire amount paid as interest on home loan. For instance, currently the home loan interest deduction is capped at Rs. 2 lakh per annum for self-occupied house property and deduction of actual interest paid is allowed for a second home that is given on rent or is deemed rented. However, nowadays buying a second home is not very common owing to high property prices. In such cases, home owners possessing a single home need to be allowed to deduct the entire amount paid as interest on home loan. This would be a welcome relief for salaried individuals since they do not have much scope for tax saving and moreover this is an expense-based deduction.
3. Clarify over beneficiaries under Pradhan Mantri Awas Yojana
The government recently announced that interest subsidy of 3% would be applicable on loans of up to Rs12 lakh and 4% on loans of up to Rs 9 lakh under the Pradhan Mantri Awas Yojana (PMAY). Now that two new income categories can avail higher loans with interest subsidies, homebuyers are expecting some more clarity on actual definition of beneficiaries who can avail of these benefits.
For example, “would young urban professionals hoping to buy their own apartments but not belonging to either the EWS (Economically Weaker Section) or the LIG (Low Income Group) segments be allowed similar subventions? Also, affordable housing is largely available in the fringe areas of metros and tier-II, III cities. So, would certain redevelopment projects within the metropolitan city limits – and meeting the affordable housing definition – be granted similar benefits?” asks Puri.
If done, this will definitely benefit homebuyers.
4. Single-window clearance system
A single-window clearance system is needed to make property affordable. According to experts, such a system alone can bring down the cost of property substantially. That is because at present more than 50 approvals from the government and various authorities are needed for the launch of a real estate project in India. The approval process, that includes getting the NoC and licences, takes about 18 months to 36 months to complete and if any project gets stuck at some point, then it causes further delays. But a single-window clearance system, if implemented, will not only prevent unnecessary delays in the delivery of a project, but also bring down the prices of homes by 20 to 25 per cent, making them more affordable.
5. Quick Passage of GST
While the GST (goods and services tax) structure was announced last year, the real estate industry is waiting with bated breath to see which tax rate is applied to the real estate and construction industry. “Currently, homebuyers need to pay service tax, VAT as well as stamp duty while purchasing flats. The government should ensure the quick passage of GST which will replace numerous taxes and help consumers. The budget should also do away with the multiple taxes involved in the purchase of residential property. As of now, home purchasers are required to pay service tax (ST) and value-added tax (VAT) on top of stamp duty as well as registration charges. GST should be introduced in place of these taxes, wherein the overall impact of indirect taxes will reduce and homebuyers will benefit,” says Munish Doshi, Managing Director, ACME Group.