NAREDCO seeks higher home loan interest deduction, Settlement Commission revival in budget

NAREDCO seeks higher home loan interest deduction, Settlement Commission revival in budget

• NAREDCO seeks to increase home loan interest deduction limit to Rs 5 lakh
• Reinstatement of Income-tax Settlement Commission suggested for dispute resolution
• Exemption from tax on notional rental income sought to boost rental housing

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The National Real Estate Development Council (NAREDCO) has recommended the Union Ministry of Finance a slew of measures for the upcoming Union budget such as setting a higher limit for interest deduction on home loans and reinstatement of the Income Tax Settlement Commission.

"The limit for interest deduction on home loans should be raised from Rs 2 lakh to Rs 5 lakh or more for owner occupied houses. Also, five years period for acquisition or completion from the year of borrowing should be dispensed with," NAREDCO said in its recommendations to the Union Ministry of Finance on January 22.

Currently, under Section 24(b) of IT Act 1961 (Section 22 of IT Act 2025), deduction on account of interest payment on housing loans is permissible to owners of rented dwelling units to the fullest extent. In case of owner-occupied houses, the limit is set at Rs 2 lakh.

Parveen Jain, President, NAREDCO, said that rationalising taxation, especially on housing finance, will directly stimulate end-user demand.

“The move will provide much-needed impetus to a sector grappling with a significant housing shortage and offer relief to homebuyers impacted by project delays arising from cash flow constraints, while restoring overall buyer confidence,” he said.

NAREDCO has also suggested the reinstatement of the Income-tax Settlement Commission. The commission established in 1976 to provide taxpayers a one-time opportunity to enter into a compromise and settlement arrangement with the Income-tax Authority to grant them relief from penalties and prosecution, was discontinued with effective from February 1, 2021.

"Restoring and strengthening dispute resolution mechanisms like the Income-tax Settlement Commission is critical for fostering a transparent, investor-friendly environment in the real estate sector. Coupled with rationalized taxation policies, these reforms will catalyse sustainable growth, boost housing affordability," said, Niranjan Hiranandani, Chairman, NAREDCO.

The recommendations gain significance as the real estate sector comprises about 7-8 percent of India's GDP and is the second largest employer after agriculture with about 19 percent of the country's total workforce.

The developers’ body also recommended that entities engaged in real estate business should be exempted from the burden of tax on notional rental income, as there is a need to incentivise rental housing in India.