Budget 2025 wishlist: Four housing loan reforms that home buyers want on February 1

Budget 2025 Expectations: The industry body also proposed reducing marginal personal income tax rates for incomes up to RS 20 lakh to spur consumption and growth.

Home loan borrowers and industry experts have a long wishlist for the Union Budget 2025-26.
They hope Finance Minister Nirmala Sitharaman will address some of their long-standing demands for enhanced tax benefits, despite the government being now keen on promoting the new, minimal exemption tax regime.

Though the old tax regime has not seen any new or enhanced tax breaks since the introduction of the simplified regime, experts are still calling for higher exemptions, as the cost of home ownership continues to soar in urban India. They feel that the existing tax deductions under sections 80C and 24B (old tax regime) are insufficient and reforms are needed to make home ownership more affordable.

Need for higher tax exemptions

Costs of home ownership are extremely high in urban areas, requiring the purchasers to take large home loans which strain their income and limit savings and expenditure. Currently, home owners get deductions under sections 80C and 24B under the old regime. For a self-occupied house, you can avail a maximum tax exemption on home loan interest of up to Rs 2 lakh in a year under section 24(b) as also on principal repaid of up to Rs 1.5 lakh under section 80C.

“In urban areas, families with dependents and children comfortably exceed the limit of Rs 1.5 lakh under section 80C, which makes it impossible to get the full value for their loan payments, insurance premiums, and essential expenses,” says Adhil Shetty, CEO, BankBazaar.com. Therefore, some financial experts and housing finance companies feel there is a need to create a separate section for home loan principal repayment, with a tax deduction limit of up to Rs 3 lakh.

The cost of housing has also gone up significantly over the years, and the average loan ticket sizes are on the rise. “Given that a Rs 30 lakh loan at 9 percent would mean interest repayments of over Rs 2 lakh for the first nine years of the loan, the limit of Rs 2 lakh for a self-occupied property is far too low,” says Shetty.

Income Tax Act review: Consolidate tax benefits on home loan interest and principal

To boost tax compliance and simplify the current Income Tax Laws, the government is planning an overhaul of the Income Tax Act, which some feel could be unveiled in the Budget 2025. However, Moneycontrol’s report suggests that the restructuring could take another year.

The aim of the revamped I-T Act is to make tax compliance easier for individuals. “It should consolidate home loan payments, including both interest and principal, into a single tax section dedicated to home loans,” says Shetty. Additionally, it's recommended that the net deductions on home loans be increased to Rs 5 lakh, providing taxpayers with better tax deductions on their interest payments, particularly during the initial years, he adds.

This will promote home ownership by making it more affordable and reducing the financial burden on taxpayers.

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Reinstate credit-linked subsidy scheme

The CLSS was available until March 31, 2022. This scheme enabled beneficiaries from economically weaker sections (EWS), low-income groups (LIG), and middle-income groups (MIG) to obtain housing loans at subsidised interest rates from banks and other financial institutions.

Arun Ramamurthy, Director of Andromeda Sales and Distribution, hopes that Union Budget 2025 will introduce initiatives that will lower interest rates, such as subsidised loans or enhanced support for the CLSS under the Pradhan Mantri Awas Yojana (PMAY), to incentivise borrowing and house ownership among lower-income families.

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Reintroduction of section 80EEA

Section 80EEA offered first-time home buyers a deduction of up to Rs 50,000 on the interest paid on home loans. This was discontinued after March 2022.

“Reinstating benefits under section 80EEA, which provides additional tax deductions for first-time home buyers in the affordable housing segment, is a key expectation,” says Ramamurthy. This move could encourage more people to invest in affordable housing.