Home owners were smiling from ear to ear during the interim Budget announcements. Exemption was proposed on the notional rent applicable on the second self-occupied house. The threshold limit for TDS on rental income was proposed to be enhanced to Rs 2.4 lakh from Rs 1.8 lakh. Also, the capital gains tax exemption from sale of house property was extended from re-investment of proceeds in two residential properties instead of a single house property, available earlier.
Experts suggest that there is a strong need to not just stick to the interim Budget suggestions, but also announce a slew of other measures to provide the ailing real estate sector a push, which in turn would boost the economy.
Tax boost needed for realty sector
That the tax deductions available on home loans including principal repayment under Section 80 C, interest payment under Section 24 (b) and housing rentals should be relooked is a view in many quarters.
Keki Mistry, Vice Chairman and CEO-HDFC Limited, says, “The tax deduction available on interest payable on housing loan has been kept at Rs 2 lakh for a long time, except a brief period when additional Rs 50,000, was provided for loans taken during a limited timeframe. That enhanced concession is over and hence there is a definite need to increase the limit by a significantly higher amount, given the state of the economy and the need to boost sales.”
Mistry suggests that the interest deduction be increased to Rs 3-3.5 lakh to improve housing demand. “The additional benefit, can be provided on the condition that the house is bought within a limited time frame, say a two-year ” he adds.
Another area of itch is the Rs 1.5 lakh cap on Section 80 C exemptions, which includes the home loan principal repayment. “The deduction limit under Section 80C was last increased in 2014 after a hiatus of a decade. The government could consider revising it now. Though it will eventually be an added burden on the exchequer, it will help bring back buyers and revive the sector,” says Anuj Puri, chairman of ANAROCK Property Consultants.
But instead of merely increasing the Section 80 C limit of Rs 1.5 lakh, an additional move is being demanded. Vipul Patel, Managing Director & Founder, of loan advisory firm Mortgage World, recommends, “The Section 80 C deduction limit of Rs 1.5 lakh is generally exhausted by tax-planning investments. There is a need to remove the home loan principal repayment deduction from the basket of Section 80C and introduce a new section or sub section allowing a higher principal repayment. This limit can be further enhanced to Rs 2.5 lakh.”
With regards to home loans per say, there have been calls to ensure that banks and home financers walk the RBI rate-cut path and make transmission effective. “RBI has reduced the policy rate for three consecutive times. However, the mortgage rate from banks has remained sticky at around 9 per cent. The government should signal its intent to lower the prevailing mortgage interest rates in sync with the reduction of Policy Rate,” says Ramesh Nair, CEO & Country Head, JLL India.
Measures needed for rentals
Home rentals is another area that needs to be relooked at. While it remains to be seen whether the TDS threshold improvement to Rs 2.4 lakh from Rs 1.8 lakh announced in the interim Budget is maintained, the measures to tax rental income need to be relaxed.
“The income earned as housing rental is fully taxable. While the interest paid against a home loan can be set off against this income, the benefit is capped at Rs 2 lakh. This limit needs to be removed entirely as it existed a couple of years ago, as the demand for purchasing a property for rental income has gone down significantly,” suggests Mistry.
With regards to rolling over of capital gains from sale of property as per Section 54, the interim Budget proposed to permit re-investment of sale proceeds in two residential properties instead of one permitted currently. This was offered as a once-in-a-life-time benefit on an amount of up to Rs 2 crore.
However, a slight tweak to this proposal would be helpful. Patel of Mortgage world says, “The capital gains exemption from property sale proceeds are currently available if gains are invested in residential properties only. The finance minister should consider cross investment of sale proceeds from residential properties to commercial properties and vice versa to offset taxes on gains.”
Though the Pradhan Mantri Awas Yojana (PMAY) has been applauded, a few relaxations have been suggested by financers and developers to make the scheme more effective. The PMAY is a “Credit-Linked Subsidy Scheme,” announced wherein the families earning up to Rs 18 lakh are offered an interest rate subsidy of 3-6.5 per cent on either purchase, construction or improvement of a house.
Mistry, of HDFC says, “Two modifications that would help in making the scheme more beneficial are that it should be made available on an all-India basis, instead of restricting it to certain geographies and pockets. Also, if someone owns any one property, maybe even an ancestral property, will not be able to avail the scheme. This barrier needs to be relaxed.”
Another clause would ensure longevity of investment in properties. “Benefit under the PMAY needs to be increased substantially and granted to the buyers over 3-5 years’ timeline so that the beneficiary stays invested in the residential assets acquired,” advises Patel.
The interest subsidy scheme for the first-time urban homebuyers has been extended till March 2020 for those having an annual income of Rs 6-18 lakh. “This is already enabling homebuyers to avail up-front financial assistance of about Rs 2.5 lakh from the central government. However, limiting the timeline to March 2020 dilutes the purpose of ‘Housing for all by 2022’. In this light, an extension till 2022 will help more and more buyers to invest in housing and will help in the sector’s revival,” said Nair of JLL.The author is freelancer writer.