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Will tax deductions increase for home loan interest repayments?

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Will tax deductions increase for home loan interest repayments?

The Union Budget 2020-21 is on the anvil and while it has been intensively debated and discussed, there remains one sector which is hopeful of a major boost from the same. This is Indian real estate which is still fishing in slightly troubled waters in spite of the Government’s bevy of measures in the recent past. The liquidity crunch is still plaguing the sector and it is now looking at a major bail-out from the Government which has nursed it back to some semblance of stability in recent times.

The mission of Housing for All by 2022 has been a game-changer for the sector, what with the emphasis on affordable housing and a slew of incentives including a cut in GST rates to 1% for affordable housing units and 5% for under-construction units, benefits for second-home buyers in the last budget (increase in TDS rental threshold to Rs. 2.4 lakh and one-time capital gains exemption up to Rs. 2 crore on two properties) and even encouragement for families to invest in second properties (zero taxation on notional assumption of rental income). The Government has also come up with an alternative investment fund (AIF) for funding stressed and stalled projects in the affordable and mid-range housing categories, bringing relief to thousands of affected buyers and several developers.

It has also taken measures to ease up the credit crunch for real estate developers in the recent past. However, while housing sales figures are recovering, a lot more needs to be done to pull the sector into the throes of future growth. This is where real estate developers are betting big on the Union Budget 2020-21 in the anticipation of a few major measures to revive the sector which contributes hugely to the country’s GDP and employment.

Will the Finance Minister offer higher tax breaks on home loans?

Now, home loan interest rates are at an all-time low after several repo rate cuts by the RBI and the introduction of repo-rate linked home loan products. Yet, in a major bid to stimulate demand for real estate, the Union Finance Minister, Nirmala Sitharaman, may consider increasing the threshold for tax deduction on repayment of home loan interest as per experts.

While there are suggestions of an overall increase in the deduction threshold for Section 80C from Rs. 1.5 lakh to at least Rs. 2.5 lakh or higher (under which home loan principal repayments can be deducted), interest repayment deductions will certainly incentivize property ownership amongst fence-sitters. This will also give a major leg-up to the Housing for All by 2022 mission. The tax deduction in this case may be increased from Rs. 2 lakh at present to a whopping Rs. 4 lakh as per suggestions.

In the previous Union Budget, Nirmala Sitharaman had already announced that eligible beneficiaries would receive 1.95 core homes till the 2021-22 period under PMAY (Pradhan Mantri Awas Yojana) Gramin. She had also sanctioned an extra deduction up to Rs. 1.5 lakh on home loan interest repayment in case of loans taken up to the 31st of March, 2020 for buying affordable housing units priced at a maximum of Rs. 45 lakh. This took the total deduction on home loan interest in this category to Rs. 3.5 lakh. Several financial experts and industry players have suggested an increase in the overall deduction for properties across all categories and a permanent increase to Rs. 3.5 lakh or Rs. 4 lakh. It remains to be seen whether the deduction on home loan interest is extended beyond 31st March, 2020, for affordable home buyers or whether there are new and more lasting measures implemented by the Central Government.

 

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