What are the benefits that finance minister Nirmala Sitharaman can offer to home buyers and taxpayers in Budget 2021? We examine
Finance minister Nirmala Sitharaman is expected to put her cautious approach to rest, when she presents the Budget 2021-22 on February 1, 2021, as the central government prepares to rid the country of the economic ill effects of the Coronavirus pandemic. As the prime minister, Narendra Modi-led central government frantically launched support measures to pull the economy out of a technical recession, after the human and an economic catastrophe caused by the COVID-19 carnage resulted in GDP in April-June touching 23.9% below its 2019 level, high-frequency indicators are pointing towards a nascent recovery.
Housing.com data show quarterly home sales in India’s eight prime residential markets increased 68% in the three-month period ended December 31, 2020, as various support measures launched throughout the year by the center increased housing affordability, prompting buyers to invest in capital-intensive assets such as immovable property, in spite of the ongoing economic depression. While record low-interest rates, festive discounts, and stamp duty reductions by some states encouraged buyers to invest in homes in the aftermath of the pandemic, new supply in the key housing markets also increased during this period, because of the liquidity support offered by the government to the developer community.
Housing.com numbers show a total of 54,329 new units were launched during the October-December period in 2020 amidst the phased easing of restrictions.
Nevertheless, key indicators of growth in the housing sector would take a lot longer, to reach their pre-COVID-19 levels and a lot more is expected from the FM to fuel demand in this sector, the largest employment-generating sector in India after agriculture. Now, what steps should Sitharaman take, on February 1, 2021, to trigger fresh demand in the housing segment that directly contributes nearly 6%-7% to national GDP?
Extension of Section 80EEA timeline
Under Section 80EEA, the government offers additional tax benefits of Rs 1.50 lakhs per annum, on the interest component of home loans to first-time home buyers, if they invest in affordable properties, i.e., housing units worth up to Rs 45 lakhs. With a view to achieving the target of ‘Housing for All by 2020’, the center extended the interest deduction under Section 80EEA for loans taken during the period between April 1, 2019, and March 31, 2021.
With measures already in place to promote investment in affordable property, the budget is the ideal time to announce a further extension of the benefits under Section 80EEA, especially during the current slowdown.
Considering India’s stimulus spending in response to the pandemic has been much less overwhelming than other large economies – the FM has so far announced a stimulus package of Rs 29.87 lakh crores or 15% of GDP – she still has a lot of scope for measures such as these, to revive demand in housing.
Extending the cap under Section 24
Another recurring demand from the home buyers, has been increasing the limit of tax deduction allowed under Section 24 of the income tax (IT) law. If the property is not generating income (as is the case with a self-occupied or a vacant property), the borrower can claim a deduction of up to Rs 2 lakhs on the home loan interest paid in a financial year under this section.
Since home loans have long tenures, a large part of which goes in repaying the interest component of the borrowed capital, it only makes sense that the deduction limit under Section 24 be extended to at least Rs 3-4 lakhs a year.
Extending the cap under Section 80C and a new section for principal repayment
Industry body CREDAI has also suggested that the deduction limit under Section 80C, for principal repayment on home loans, be increased, to make the provision more exhaustive. Section 80C covers deductions on home loan principal repayment under its overall deduction limit of Rs 1.50 lakhs a year. Stamp duty and registration charges for property purchase can also be included as deductions under this section.
The body has also suggested that a separate exemption for principal repayment on home loans be introduced, in this year’s budget. “We suggest that the deduction under section 80C for principal repayment of housing loan should be increased from the existing limit of Rs 1,50,000. The deduction for principal repayment of housing loan can be considered for a separate or standalone exemption,” CREDAI said in a statement.
Setting off of losses on rental income
Although a let-out property will generate a certain income for the owner, it is quite possible that the income is much less, as compared to the liability coming in the form of home loan interest and property tax. This has been the case with many landlords during the pandemic. In order to provide relief to such taxpayers, Section 71 of the IT law prescribes setting-off of losses from house property under other heads which include income from salary, income from other sources, profit and gains of business and profession, and capital gains. The unadjusted losses under other heads could be carried forward for eight years, after the year in which the loss occurred. After this eight-year period, the set-off is permitted only under the head ‘income from house property’. However, the amount that could be set-off against other heads had been capped at Rs 2 lakhs per year in the 2017-18 budget for all sorts of properties, self-occupied or rented. Hence, there is a case for increasing the limit for the set-off of losses to Rs 4 lakhs to Rs 5 lakhs.
Rationalization of GST rates
Another move that could augur well for the Indian housing sector is streamlining the Goods and Services Tax (GST) regime. This could be achieved by bringing a uniform tax rate for affordable, as well as non-affordable categories. Presently, buyers have to pay 5% GST without input tax credit (ITC) on the purchase of non-affordable homes and pay 1% GST without the ITC while buying affordable properties. In 2019, the government reduced the GST rates applicable to housing, offering higher rebates to the affordable category.
If the developers are allowed to enjoy the ITC along with the capped rate of 1% GST across projects, buyers would find property purchases way more cost efficient and much less complicated.
While at it, the center could also extend the deadline for the PMAY’s credit-linked subsidy scheme (CLSS) for the mid-income category for another year, till March 31, 2022. It has already extended the deadline to avail of the benefits of the scheme, for the economically weaker sections (EWS) and the low-income group (LIG) categories.
It is also high time that the government considered granting the sector its long-standing demand – that housing is conferred an industry status, to be able to get priority sector lending from financial institutions. So far, only the affordable housing segment enjoys infrastructure status.
Tax relief for second-home buyers
According to Lincoln Bennet Rodrigues, founder, and chairman of Bennet & Bernard Group, there is also a specific need for IT relief on second homes, as this will benefit home buyers in a big way and stimulate the realty sector. “In the aftermath of the COVID-19 pandemic, people have realized the importance of larger spaces and self-sustained communities. So, the desire to have bigger spaces for the same investment would definitely shift the focus from buying realty in cities to second homes in holiday destinations,” he adds.
Source – https://housing.com/news/budget-what-do-home-buyers-need-from-the-finance-minister/
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