Budget 2021

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Budget 2021

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Budget 2020 | Homebuyers want separate provision for deduction of principal repayment on home loans

Homebuyers have proposed that the principal repayment of a housing loan be separated from the overall limit of Rs 1.5 lakh under Section 80C

Both homebuyers and real estate developers are hoping that Budget 2020 would help turnaround their fortunes. While homebuyers want immediate deployment of Rs 25,000 crore Alternative Investment Fund (AIF) and last mile funding extended even for networth negative and non-RERA registered projects, builders are hoping for a one-time restructuring of loans and increase in the limit of affordable housing from the current cap of Rs 45 lakh.

Homebuyers hope that there would be an immediate deployment of the Rs 25,000 crore stressed asset fund. However, the fund should not be restricted to networth positive and only RERA registered projects, they feel.

On November 6, 2019, the government approved the creation of a 'professionally managed' Rs 25,000 crore fund for boosting stalled middle and low-income RERA registered housing projects that are networth positive.

“Homebuyers bought units from builders and if certain projects are declared networth negative, it’s not the fault of the buyers,” said Abhay Upadhyay, President, Forum for Peoples Collective Efforts, adding if the builder has not registered the project with RERA that is not the buyers’ fault. “Why should we continue to suffer.”

“The government should frame such a policy that covers all stuck projects and provides budgetary support to even those projects that are networth negative and are not registered with RERA. In fact, these projects should be completed by realising money by attaching properties and personal assets of promoters,” he stated.


“The government over the last three years has continued to provide sops to the sector but despite all the measures the segment is still not looking up. It needs to inject strong confidence building measures. Completion of stressed projects is expected to improve homebuyers' sentiment and boost demand. Any further delays will result in a domino effect and add more stressed projects,” he added.

Homebuyers have also proposed that the principal repayment on a housing loan be separated from the overall limit of Rs 1.5 lakh under Section 80C. “The amount -- Rs 1,50,000 -- set aside as principal repayment of home loan, which currently qualifies under Section 80C of Income Tax Act, should be brought under a different provision and not clubbed with 80C,” a homebuyer said.

The law offers a deduction for repayment of the principal amount for a home loan taken for purchase or construction of a residential house property u/s 80C.

In the Finance Act, 2019, the government has allowed an interest deduction on a housing loan for two (instead of one) self-occupied house properties up to Rs 2 lakh u/s 24. However, Section 24B comes with a rider that this deduction is permissible only if the property has been delivered within a period of five years.

“What is the guarantee that the builder will hand over the property within five years. Also, why should the homebuyer be penalised if there is a delay in handing over the unit? Ideally, this amount should be recovered from the builder if the property is not delivered within the stipulated time,” he questioned.

To boost rental housing, Upadhyay suggests doing away with the segregation of investors, homebuyers and end-users. “They should all simply be called consumers. Everybody has invested money, and should therefore not be treated differently under the law. Proceeds from rental income should be incentivised by enhancing the standard deduction u/s 24(a) to 50 percent from 30 percent.”

The Confederation of Indian Industry (CII) feels the maximum available deduction on interest payment of a home loan be increased from Rs 2,00,000 to Rs 5,00,000. The government, it feels, should also consider increasing the income criteria under PMAY scheme to Rs 18 lakh and 25 lakh from the current Rs 12 and 18 lakh in the MIG I and ll categories, respectively. "This would allow a wider section of the society to benefit from the scheme pushing demand."

Real estate industry bodies such as CREDAI and the National Real Estate Development Council (NAREDCO) also think a one-time restructuring of loans would help. "Liquidity shortage continues to cause distress in real estate. Hence, a one-time restructuring scheme with moratorium on principal and interest of two years is immediately needed," CREDAI stated.

NAREDCO has also proposed that subvention schemes be restored.

The National Housing Bank, through its Policy Circular dated July 19, 2019, has prohibited subvention scheme where the interest is borne and paid by the developer till the date of possession. “The Finance Minister should withdraw the said circular since the customer of an affordable housing home cannot afford paying EMI and the rent till he/she gets possession. Subvention scheme also addresses the issue of interest loss due to delayed possession,” it said.

On the commercial real estate front, there is a bit of confusion about the treatment of Goods & Services Tax (GST) on projects, which are being strata sold versus those being developed for leasing.

Where properties are not sold, but developed for leasing, GST at 18 percent is applicable, as the assumption is that this is a service. An industry expert said this pushes up the cost of construction and further challenges the cash flows available, especially at a time when there is a liquidity crunch.
Vandana Ramnani

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