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Budget 2021 expectations for home buyers: Loan rates at record-low but demand is down! What to expect?

Financial Express |
Raghunathan Parthasarathy, Partner
Tax and Regulatory Services

30 December 2020

Budget 2021 Expectations: Government can look at providing an additional tax benefit for new home buyers in the coming financial year in the form of higher tax benefit on interest payment.

Union Budget 2021 Expectations for Home Buyers: During the presentation of the Budget 2021, the housing sector is expected to be on the radar of the Finance Minister Nirmala Sitharaman. This is because the timeline for the Government’s initiative regarding ‘Housing for All’ for urban areas by the year 2022 is closing-in. One important factor that counts for the real estate demand to shore up is the interest rate in the economy. Currently, the home loan interest rate is below 7 per cent for most individuals looking for a loan. Although the government has taken several steps in the recent past, the demand doesn’t seem to be kick-in as expected. A few more steps in boosting the housing demand may, therefore, be expected in the upcoming Union Budget 2021.

“Anything related to the home loan as rates are low but demand is still lacking. The government can look at providing an additional tax benefit for new home buyers in the coming financial year in the form of higher tax rebate on interest payment. This will encourage a segment of buyers to buy their home and additional tax saving benefit can act as a good incentive,” Harshad Chetanwala, Co-Founder-

Pradhan Mantri Awas Yojana (PMAY)

Finance Minister Nirmala Sitharaman in her press conference today has extended the last date of the Pradhan Mantri Awas Yojana (PMAY) Credit-Linked Subsidy Scheme (CLSS) both for the MIG-I and MIG-II categories. The last date for anyone wishing to avail the PMAY CLSS scheme was March 31, 2020, but now stands at March 31, 2021. The other category of LIG/EWS, however, has the last date of March 31, 2022.

Under the PMAY CLSS scheme, those with income between Rs 6 lakh and Rs 12 lakh fall under MIG-I and get an interest subsidy of 4 per cent on a loan amount up to Rs.9 lakh. Similarly, those with income between Rs 12 lakh and Rs 18 lakh fall under MIG-II and get an interest subsidy of 3 per cent on a loan amount up to Rs.9 lakh. Effectively, the PMAY CLSS subsidy amount comes to Rs 2,35,068 and Rs 2,30,156 for the MIG-I and MIG-II scheme respectively. It remains to be seen if the government comes up with some last-push for the PMAY in the Union Budget 2021.

Additional tax benefit under Section 80 EEA

For the first time buyer of a home, the government has extended the tax benefit available on interest payment of the home loan. Under Section 80EEA, the borrower can avail a deduction of up to Rs 1.5 lakh on home loan interest payment subject to certain conditions. One such condition is that the home loan needs to be sanctioned by the lending institution during the period from 1st April 2019 to 31st March 2020 which has already been extended to March 31, 2021.

To avail tax benefit under Section 80EEA, the value of the home as per the stamp duty needs to be within Rs 45 lakh. “Many find these provisions restrictive and hence it will help if the Government enhances the property value threshold and relaxes the restriction of the taxpayer not owning any property,” says Aarti Raote, Partner, Deloitte India

The Government may also widen the definition of affordable housing by increasing the limit of affordable housing from Rs 45 Lakh to Rs 75 Lakh,” says Col Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a financial planning firm which caters exclusively to armed forces officers and their families.

Section 24 limit

The tax benefit for interest payments is available under Section 24 of the Income Tax Act. “The deduction available with respect to interest on housing loan paid for a self-occupied property is restricted to Rs 2 lakh. Given the long periodicity of loan repayment and the increased interest cost in the early years of repayment, it is a home loan payer’s wish that the said deduction be increased to at least Rs 4 lakh per annum in the upcoming budget,” says Raghunathan Parthasarathy, Associate Partner – Tax & Regulatory Services, BDO India.

Rental income impacted

“The set-off of loss under the head ‘Income from house property’ against any other head of income (including Income from salary) was restricted up to Rs 2 lakh per annum and the balance can be carried forward for a period of 8 years and can be set off only against income from house property. This has impacted thousands of taxpayers who had availed housing loan(s) in the past based on the provisions of the Act on set-off as it stood then. Also, considering the reduction in the rent realised from the property due to the pandemic, the loss from let-out house property is expected to increase. In order to incentivise home buyers and boost the real-estate sector, the limit for deduction and set-off of losses may be revised upwards at-least to Rs 5 Lakh,” says Parthasarathy.

Passive income

Several senior investors invest in real estate properties to fetch rental income. The COVID-19 has put pressure on the rental properties thus impacting the income flow of such investors. “On account of falling interest rates and reduction in rental income, Senior citizens surviving on passive income are facing an enormous challenge. The government should be looking at a mechanism for subsidizing their costs like medical, rental, telephone, electricity etc in some manner. This may not come under the ambit of taxation but should be addressed in some manner that the benefit flows to the senior citizens,” says Raote.