Budget 2026: Tax sops, low-cost funding, altering affordable housing definition key to realty sector’s sustainability, say experts

The domestic real estate sector has called for structural changes in the upcoming budget, ranging from affordable financing, enhancing the exemption limit on housing loans and altering the definition of affordable housing.

“Persistent structural challenges in affordability, finance access, taxation, and regulatory framework continue to impact the real estate sector,” said Confederation of Real Estate Developers’ Associations of India (CREDAI). 

As housing remains a critical engine of economic growth, the industry body considers the targeted interventions from the government crucial to restore affordability, unlock pent-up demand, and ensure sustained supply across residential segments. 

“To keep pace with India’s rapid urbanisation, it is vital to strengthen affordability, expand access to formal finance, and develop a robust rental housing ecosystem. Targeted measures—such as redefining affordable housing parameters, enhancing interest deductions, introducing a Credit Guarantee Scheme, rationalising GST, and establishing a National Rental Housing Mission—will unlock investment, reinforce homebuyer confidence,” Shekhar Patel, President, CREDAI, said. 

According to experts, tax incentives are needed to sustain the demand. “Tax incentives for homebuyers, especially an enhancement of the Section 24(b) interest deduction to ₹5 lakh, will sustain demand and improve affordability,” Rohit Kishore, CEO, Hero Realty, said. 

Demands to redefine the meaning of affordable house

The current definition of affordable housing has not changed since 2017. It limits homes to 60 sq. m. in metro cities and 90 sq. m. in non-metro areas, with a price cap of ₹45 lakh. This no longer matches today’s higher land and construction costs. Furthermore, multiple inconsistent definitions across schemes (PMAY, RBI, NHB, RERA) create administrative complexity. CREDAI proposes revising carpet area norms to 90 sq. m. in metros, and 120 sq. m. in non-metros; removing the value threshold entirely; and harmonising definitions with the Harmonized List of Infrastructure Sub-sectors. 

“This area-based approach will expand viable supply in urban centres, simplify compliance, and support greater employment and economic activity,” the apex body believed. 

Exemption limit on housing loan needs to be expanded

The current ₹2 lakh limit on home loan interest deduction has not been revised for more than ten years and does not reflect today’s higher property prices, larger loan amounts, and higher interest rates. In most cities, middle-income homebuyers pay ₹4–6 lakh a year as interest, which reduces the benefit of this deduction.

CREDAI recommends removing the cap for the first self-occupied residential property and extending the deduction to the new tax regime to ensure parity. 

“Appropriate safeguards—such as limiting the benefit to owner-occupied and first homes—can prevent misuse. This reform will improve affordability, enhance disposable income, stimulate housing demand, and align fiscal incentives with the objective of promoting home ownership,” the industry body explained. 

Experts also suggest that the stable interest rates will further support absorption in the sector, “Stable interest rates and sustained public capital expenditure will further support absorption, while measures that enhance liquidity access, housing finance inclusion, and incentivize green construction can create long-term value across the ecosystem,” Manik Malik, CEO, BPTP said. 

Credit guarantee scheme needed for affordable housing

Furthermore, CREDAI proposed a Credit Guarantee Scheme for affordable housing and home improvement loans to help low-income and informal-sector households who struggle to get bank loans due to lack of documents, forcing them to depend on costly private lenders. 

The industry body said that since housing loans have a low default rate, the scheme will reduce risk for lenders, expand credit to EWS and LIG families, and support financial inclusion without putting pressure on the government budget, as it will be funded through a small guarantee fee from borrowers. 

CREDAI has also called for reforms in GST on housing and construction, saying the current structure has raised costs and slowed new supply, and lower GST rates along with easier input tax credit will reduce costs for buyers and developers and boost overall activity. 

In addition, it has recommended a National Rental Housing Mission to develop affordable rental homes in major cities through incentives for developers and tax relief for tenants, which will help manage urban migration, formalise the rental market, support workforce mobility, and do so without a major fiscal burden.