Buying a house is a dream for many of you, but it is still a dream because of its unaffordability. If you are looking forward to buying a house, you have realised two primary problems related to financing your house.
An increase in EMI is due to constant measures taken by the RBI to curb inflation in the country, mainly an increase in interest rates on loans.
A significant increase in the cost of materials used in the construction of houses is due to a hike in GST rates.
Because of these two above-mentioned reasons, you, as a home buyer, might be looking forward to getting some tax reliefs on the occasion of buying a home either through instalment or via paying a whole amount of money in one go.
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In the eyes of the government, India can still get a house affordably within a price band of ₹45 lakhs. On the contrary, in the majority of cities in the area, when we talk about urban areas of the country, housing is not at all affordable in the given price range.
There has to be an increase in the price band of affordable housing to ₹75 lakhs or more. As when you look at the mediocre locality of the cities, you will need a corpus of at least ₹75-90 lakhs along with stamp duty and registration.
The standard deduction under section 24B
The maximum limit of deduction if you buy a home by taking a loan is ₹2 lakhs, which is unreasonable when you look at the constant hike in interest rates on loans by banks. To give a boost to the growth of the housing sector, the government needs to set up a tax relief plan to make housing affordable enough to increase the demand.
The government might increase the deduction limit of interest on the loan to ₹5 lakhs. As you can take up a deduction on tax if you have taken a loan for the construction of a new house property or renovations of an existing house.
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Reduction in GST rates
The current GST rate on steel and cement is 18% and 28% respectively which is increasing the burden on constructors, reducing their profits, and demotivating buyers as well. In addition to the GST rates, developers cannot claim input tax credits at the time of selling their properties.
Input tax credit refers to the process when a developer buys a raw material, they have to pay tax on the same. At the time of selling, the developer can recover the tax from the buyer, and the remaining amount will be paid to the government. But in the current case, there is no facility given to the seller or developer. They have to pay GST out of their own pockets.
Such a tax system acts as an entry barrier to the industry and demotivates buyers as buying a house or constructing one is becoming highly unaffordable.
To boost the growth of the housing sector in the country, the union budget 2023 is expected to reframe the tax structure of the industry while increasing the affordability of housing criteria, standard deduction on interest on the home loan, and GST on raw materials required for construction.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com