Budget 2025: Affordable housing segment hopes government will hike tax deduction limits, house value cap

In the past, government programs like PMAY “Housing for All” and the SWAMIH scheme have supported affordable housing

On February 1, the affordable housing segment would be eagerly awaiting for specific announcements aimed at enhance housing affordability and boost infrastructure development in India.

Currently, one of the major challenges in the affordable housing sector is the disparity between government-defined price caps and the actual cost of homes in metro cities. Analysts propose increasing the house value cap under Pradhan Mantri Awas Yojana (PMAY) from the current Rs 35 lakh to Rs 50 lakh in metro cities.

This revision, according to experts, would align with the rising cost of housing and ensure that more urban homes qualify as “affordable.” Such a move would also allow developers and buyers to benefit from PMAY subsidies and tax benefits, ultimately driving growth in the urban affordable housing market.

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On a different note, the segment is also hoping that the government would review the home loan interest deduction limits. Under Section 24(b) of the Income Tax Act, the current cap of Rs 2 lakh on home loan interest deductions is considered insufficient in the face of rising housing and financing costs.

Raising this limit to Rs 4 lakh would significantly ease financial pressure, particularly for first-time buyers in metros with high EMIs, say analysts at Axis Securities. By lowering the effective cost of homeownership, this move could widen access to housing for a broader demographic.

In addition, the sector is seeking dedicated benefits under Section 80C. Currently, Section 80C of the Income Tax Act provides a consolidated deduction of up to Rs 1.5 lakh annually for various investments and payments, including home loan principal repayments.

To incentivise housing further, experts recommend introducing a separate annual deduction of Rs 1.5 lakh exclusively for home loan principal repayments. This dedicated benefit would encourage more people to invest in property while easing the financial burden on existing homebuyers.

Together, these measures could significantly boost housing demand in metro cities, particularly in the affordable segment. Increased demand would likely benefit developers catering to this market, potentially driving a recovery in the stock performance of companies like GIC Housing Finance, LIC Housing Finance, and Aavas Financiers.

In the past, government programs like PMAY “Housing for All” and the SWAMIH scheme have supported affordable housing by reviving stalled projects.

Analysts believe the 2025 Union Budget could build on these initiatives, introducing enhancements to PMAY-HFA to ensure affordable urban housing. Measures such as reduced stamp duty and the reinstatement of the Credit-Linked Subsidy Scheme (CLSS) under PMAY could further incentivise buyers in the affordable segment, bolstering sector-wide optimism.

So far in 2025, stocks of GIC Housing Finance, Aavas Financiers, Aadhar Housing Finance, PNB Housing Finance, and LIC Housing Finance have declined by up to 7 percent, compared to a 2 percent drop in the benchmark Nifty 50 index. This performance reflects broader concerns about affordability and sector-specific challenges.

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