Budget 2018: Will Modi govt fulfil housing expectations of millions?

Budget 2018

The "Housing for All by 2022" mission has set the stage for a robust recovery in the residential property market. In the past two years, we have seen an unprecedented focus on reforms channelised through the Benami Transactions (Prohibition) Amendment Act 2016, demonetisation, Real Estate Regulatory Act (RERA) and the Goods and Services Tax (GST) regime. So, this time, the Budget for FY2018-19 will be much more critical than ever. The provisions, if moved in positive directions, will have the power to continue the momentum and cement home buyers' confidence.

While so many tough decisions have already been taken, it will be worthwhile to rationalise further the direct tax structures impacting home buyers. I believe that there is room for improvement in some of the prime income tax (IT) provisions meant to incentivise the home buyers.

Deduction on home loan interest: The IT Act has provisions under which a home buyer can claim a deduction on home loan interest paid towards an under-construction property, in five equal instalments for five financial years. But this deduction is included in the overall deduction amount of Rs 2 lakh that one can claim in a financial year.

Also, the condition of equal deduction during five years leaves limited room for home buyers to claim benefit of the current year's interest paid. Buyers can claim the benefit only after receiving possession of the property and thus there is no benefit during the construction period. Given so many properties are delayed in possession, the interest component paid during construction can also become very high.

Sample this: A home buyer pays Rs 7.5 lakh over five years of construction period as interest towards home loan. In this case, he can claim Rs 1.5 lakh every year, but then this amount is included in the overall limit of Rs 2 lakh, thus making no significant impact on his taxable income.

To provide relief to home buyers as well as encourage investment in under-construction properties, the government should introduce a separate tax benefit for pre-EMI interest during the construction period.

Deduction on interest paid after completion for let-out properties: As budget 2017 has imposed a limit of Rs 2 Lakh on deduction of interest paid for non-self-occupied properties under Section 71 of Income Tax Act, investment in properties for rental have become less attractive. Rental housing is an important part of the housing industry as it provides a roof to people who cannot afford their own houses. To make rental housing more attractive, the government should increase the limit to Rs 3 lakh.

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