What The Real Estate Sector Expects From Budget 2017-18
The 2-lakh deduction limit on the interest paid on home loans desperately needs a re-look
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The beleaguered real estate sector could do with a boost, and the budget could be an ideal opportunity to give it a much-needed shot in the arm. Oversupply, construction delays and a general loss of faith in the sector, have combinedly impacted demand after 2012. Here are five steps that Finance Minister Arun Jaitley could take to start setting things right again.
Higher tax sops for first-timers
The Budget 2016 ushered in an incremental deduction of Rs 50,000 for first time home buyers. However, the narrow rules spoiled the party for house buyers in Tier -1 cities; the deduction was provided purely to those purchasing homes under 50 lakh in value, and with a loan of up to 35 lakh. Prices of most homes in Tier I cities such as Delhi and Mumbai fall well outside these limits, making this a nugatory point for home buyers in most metros.
In Budget 2017, we could see these limits being revised, making them more inclusive. Perhaps, higher limits could be provided to home buyers in metros alone, leaving it unchanged for Tier II and III cities. Additionally, further tax rebates could be made available for delayed projects, serving as a much-needed investor protection mechanism of sorts.
A revision of Section 24 deduction limits
The 2-lakh deduction limit on the interest paid on home loans desperately needs a re-look. Even with a 9 per cent, 20-year loan of Rs 50 lakh, the interest out-go in the first year alone works out to nearly 4.5 lakh. In a bid to lend a fillip to the flagging realty market, there’s a possibility that the Government will hike the Section 24 deduction limit in Budget 2017. Some even expect it to be raised by two and a half times to 5 lakh.
Coupled with lower interest rates, such a financial incentive will surely go a long way in encouraging middle income professionals to move out of their rented accommodation and purchase homes; potentially resulting in a partial clean-up of the glut of unsold units that are scattered across most urban-periphery areas.
A re-look at home insurance norms
Without a doubt, there’s a burgeoning need to encourage people to buy home insurance. In recent times, India has witnessed an alarming number of natural calamities, many of which have led to immense loss of property. Needless to say, those without home insurance have suffered tremendously. The current budget could see tighter, stricter norms for home buyers in terms of home insurance. It wouldn’t be surprising to see home insurance premiums being added, at least partially, to the list of permitted tax deductions as well.
Revised rules for deductions of rent paid
The current rules with respect to deductions of rent paid are heavily skewed in favour of salaried employees who have HRA as a salary component – particularly favouring those with a higher basic salary; and a correspondingly high HRA limit. Employees who receive their salaries as a lump sum amount, or self-employed individuals, can only claim a pittance of Rs 5,000 as rental deduction under Section 80GG. It’s about time that this archaic rent advantage stops being the prerogative of salaried people with HRA, and is instead extended to the general populace – after all, just how many people pay a rent of Rs. 5,000 per month anymore, especially in urban areas? Among other things, such a move may even improve rental yields over the long run.
Clarity on PMAY & GST
The recently revamped PMAY (Pradhan Mantri Awas Yojana) extends interest rate subsidies of 4 per cent and 3 per cent to housing loans up to 9 lakh and 12 lakh respectively. Budget 2017 needs to throw some light on the breadth of the beneficiary pool for this scheme - for instance, is the subsidy applicable exclusively to those belonging to the Economically Weaker Section, or do young salaried professionals buying into an affordable housing project also qualify? Similarly, we can expect some clarity on what GST rate will be applicable to real estate.
If the presently applicable abatement is done away with, tax rates would rise dramatically from 3.75% or 4.50%, to as high as 18%. By and large, the impact of a higher tax rate would be neutral for the end user; it could lead to potential cost savings for the end user in some states like Maharashtra, and lead to higher prices in states like Haryana and Maharashtra. However, firmer clarity on the applicable GST rate is needed.