The Union Budget once again gave buyers of affordable homes or units costing below ₹45 lakh some reason to smile, while those who buy more premium homes don’t have reason to cheer. In fact, the removal of exemptions under the new income tax regime, implying no tax benefit on principal and interest for home loans, comes as dampener for the real estate sector.
In the last Budget, the finance minister had announced an additional deduction of up to ₹1.5 lakh for interest paid on loans taken for the purchase of an affordable house. The deduction was allowed on housing loans sanctioned on or before March 31, 2020.
“In order to ensure that more persons avail this benefit and to further incentivise affordable housing, I propose to extend the date of loan sanction for availing this additional deduction by one more year,” said finance minister Nirmala Sitharaman.
Further, in order to boost the supply of affordable houses in the country, a tax holiday was provided on the profits earned by developers of affordable housing projects that were approved by March 31, 2020. “In order to promote the affordable housing projects, I propose to extend the date of approval of affordable housing projects for availing this tax holiday by one more year,” Sitharaman said.
According to Shishir Baijal, chairman and managing director, Knight Frank India, the extension of benefits for affordable housing by one year, both for developers and homebuyers, is a step in the right direction. “However, the Budget fell short of industry expectations, with no major announcement for accelerating growth. Lowering of income tax rates with removal of exemptions, may not lead to any meaningful boost to consumption,” Baijal said.
While the personal tax relief across various income slabs would invariably increase disposable income in the hands of the middle class, this benefit, said Anuj Puri, chairman, Anarock Property Consultants, “may not percolate down to the housing sector as significantly as hoped for”. Puri believes that a hike in the ₹2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act could have kick-started healthier demand for housing.
“The non-applicability of the deduction on housing loans under the new optional individual tax structure can act as a significant deterrent for those contemplating availing housing loans,” said Shubham Jain, group head and senior vice president, Corporate Ratings, ICRA Ltd.
Barring the tax holidays for the affordable housing segment, Sitharaman didn’t announce any direct benefits for the residential real estate sector, which is reeling under consumer apathy. But she laid more focus on alternative segments within the real estate sector such as warehousing, data centres, schools, hospitals, and hospitality. “Plans to build data centre parks across the country will boost demand for more real estate spaces. Simultaneously, plans to develop five archaeological sites will open new avenues for employment and also indirectly push real estate development,” Puri said.
An optimistic Ashish R Puravankara, managing director, of Bengaluru-based Puravankara Limited, however, said the Union Budget had good tidings for the middle class. “The IT slabs in the new regime has the potential of putting extra money in the pockets of everyday Indians, which invariably boosts overall consumption.” But certainly not enough to buy a new home.