The limit of principal deduction on housing loans under Section 80C of the Income Tax Act (IT Act) 1961 stands at ₹1.5 lakh per annum. It is recommended that this be increased to at least ₹4 lakh per annum in the next Union Budget. This tax deduction can also be entirely moved out of section 80C since it gets clubbed with other instruments such as LIC, PPF, etc.
The interest deduction limit under Section 24 of the IT Act on housing loan stands at ₹2 lakh per annum, respectively, to incentivise homebuyers. We recommend that the limit be increased to at least ₹4 lakh per annum.
Currently, notional rent on a second completed, non-self-occupied / let-out property is taxable. Homebuyers can save up to I₹ lakh in taxation by offsetting their home loan interest against this notional rent. It is recommended that this tax be removed, or the ₹2 lakh limit be raised to drive capital toward the residential sector.
Long-term capital gains from the sale of house property are presently taxed at 20% through a special provision like Section 112 for equity shares. In addition, the period of holding of house property is currently 24 months to qualify as a Long-term Capital Asset (Section 54 of IT Act 1961). It is recommended that the tax rate be reduced from 20% and the holding period for a property be reduced from 24 months to 12 months so that there is no capital gains tax liability for the same. In addition, the cap of ₹2 crore on capital gains for reinvesting in two properties should also be removed.
While the SWAMIH fund recently got a capital infusion of ₹5,000 crore we recommend increase in its overall size to ₹50,000 crore. Post-COVID-19, last-mile funding to stressed housing projects has become imperative to boost residential activity and consumer sentiments.
The External Commercial Borrowing (ECB) framework, issued by the RBI under FED Master Direction No.5/2018-19, prohibits companies availing ECB from using the proceeds for construction or development of regular housing projects and there is ambiguity regarding their usage for acquisition of land for affordable housing projects. Therefore, to further enable growth in the real estate sector, it is recommended that these relaxations be provided under the ECB framework.
Additionally, we expect the affordable housing push to be sustained and carried forward.