The government’s Budget proposal of `1.50 lakh additional income tax deduction on interest paid on loans availed till March 2020 to purchase a house valued up to `45 lakh is unlikely to boost demand in city limits of metros like Mumbai, Delhi, Bengaluru and Hyderabad, but will help in reviving demand in the peripheral areas around these cities as well as in tier II & III towns.
Sandeep Jhunjhunwala, director of Nangia Advisors (Andersen Global) explained that one qualifying condition under Section 80-IBA of Income Tax (IT) Act for seeking tax holiday on affordable housing projects was that size of plot should not be less than 1,000 sq mtrs in cities like Chennai, Delhi, Kolkata or Mumbai and not less than 2,000 sq mtrs for other cities.
“Re-alignment of Section 80-IBA in form of inclusion of non-metropolitan cities of Bengaluru, NCR other than Delhi (Noida, Greater Noida, Ghaziabad, Gurugram and Faridabad) and Hyderabad for qualifying condition of plot size not less than 1,000 sq mtrs could pose a challenge as land prices in these cities are quite high. FAR utilisation under 80-IBA for cities like Bengaluru and Hyderabad was 80% earlier, which now stands at 90%. This would continue to be a hindrance considering low density prescribed at many places,” he said.
Another issue is that overall, despite enjoying tax holiday under normal provisions of IT Act, the affordable housing segment would continue to pay taxes under Minimum Alternate Tax (MAT) provisions at the rate of 18.5% (plus applicable surcharge and cess), Jhunjhunwala added.
He pointed out that Section 80EEA has been introduced in IT Act to give effect to this deduction and the qualifying conditions mean that it is not available to buyers already owing a house and also does not cover those who availed loan before April 1, 2019.
Niranjan Govindekar, partner (transaction tax), BDO India explained that if the agreement value of a property (without stamp duty and registration charges) is say `45 lakhs, however, the circle rate is `47 lakhs, then the additional benefit of `1.5 lakh interest deduction will not apply to a homebuyer. Market experts peg the difference between market value and circle rate at 5-7% in most instances.
Manoj Gaur, MD, Gaurs Group too said the incentive would benefit realty developers in tier II and II towns and in places like Noida Extension in Delhi NCR.
According to real estate consultancy, Anarock, a total of 15.3 lakh units were launched across top 7 cities between 2014-2018, of which affordable housing was about 6 lakh units. In the first half of 2019 calendar year, around 57,600 new units were launched in the affordable category (less than`45 lakh) across top 7 cities.
Pankaj Kapoor, managing director of Liases Foras, said the move will benefit home buyers in small cities and towns and in peripheral areas of metros. “Within city limits, in Mumbai for instance there will be no property in ` 45 lakh range. However, if you go to areas like Badlapur, Ambernath, Palghar, Boisar, Vasind, which are peripheral areas of Mumbai Metropolitan Region there will be properties available”. He added that cities like Hyderabad could have some properties within `45 lakhs in municipal limits.
Samantak Das, executive director (research), JLL India said a good chunk of areas in Pune will meet this criterion, while parts of Navi Mumbai — Panvel and New Panvel as well as Greater Noida in NCR Delhi — will make the cut in terms of prices.