Housing sector in 2022 has bounced back extraordinary well from the challenges posed by the unprecedented Covid-19 pandemic. Also, considering the extension of the government’s ambitious project ‘Pradhan Mantri Awas Yojana - Gramin’ in rural areas till 31st March, 2024 and a jump in the housing interest rate due to RBI monetary measures, following are the expectation from the forthcoming Budget 2023:
-To offset the increase in home loan interest rates and to provide for inflation adjustment, the benefit of deduction in respect of interest paid on such housing loans under the head “Income from House Property” should be doubled to INR 400,000 for each financial year from the current limit of INR 200,000 for each financial year.
-Currently, the benefit of availing the principal repayment of housing loans is limited to INR 1.5 lakh under Section 80C of Income Tax including other specified investments. For salaried class, the limit of INR 1.5 lakh is exhausted prior to offset any principal repayment on the housing loan. To provide relief on account of the inflation and incentivize taxpayer to repay the principal prematurely, an exclusive threshold of INR 3 lakhs should be provided to repayment of principal on housing loan in addition to the other specified investment for tax purposes.
-The restriction of INR 2 crores to avail the benefit of exemption of capital gains tax where the sale consideration is invested in two residential houses in India shall be increased to INR 3 crores to provide relief on account of inflation.
-Extension of timeline by a period of 5 years till 31st March, 2027 for approval of housing projects by the competent authority for developers to avail the deduction of one hundred percent of the total business income earned. The change in tenure will motivate the developers to undertake multiple new projects.
-Currently, the definition of affordable housing project is subject to the threshold limit in terms of stamp duty valuation of INR 45 lakhs. Given the present inflation index, amending the threshold definition to INR 75 lakhs will add value for availing the additional deduction under Chapter VI-A for the potential buyers.
Further, benefit of availing additional deduction under Chapter VI-A in respect of interest paid on home loans is to be extended to include loans sanctioned till 31 March, 2027.
-A consequent amendment of the above should be brought in under GST as well. The government should consider revising the price bandwidths for housing projects to qualify as affordable housing to align with the market dynamics of different cities. Though the carpet area of 60 sq. meter is appropriate, the catch here would be the valuation limit set merely at INR 45 lakhs for affordable housing is not appropriate across all cities.
Accordingly, the definition of affordable housing requires some tweaks, given the price movement within the real estate sector across the key micro markets.
- The completion of housing projects is not one of a short duration, but the funding for the project starts even before the construction begins. However, the allowability of interest cost as a deduction under the head “Income from House Property” starts from the year of completion of construction. To augment the relief taxpayers, the allowability of interest can commence after 3 years from date of loan where the construction has begun and ongoing.
-The concession provided under the Credit Linked Subsidy Scheme (CLSS) has supported the lower income category a long way and should be increased to factor the inflation to achieve the “Housing for All” mission. Further, the threshold limit of INR 6 lakhs to avail the benefit of CLSS in respect of the economically weaker sections and lower income groups should be increased to INR 10 lakhs to provide additional benefits in terms of loan funds.
The industry players and market experts are eyeing announcements ranging from industry status to the segment, increase in the price band, tax rebates, rationalization of GST and reforms for better infrastructure that will further help the growth in the sector. The above reforms would unlock tremendous value for the housing sector and continue to fuel both the demand and supply within the sector as well as the economy.
Sridhar R is Tax partner, Grant Thornton India