A home Loan is a crucial enabler for first-time home buyers, especially in India, where a large portion of the population do not have their own homes. The government, hence, needs to look into the requirements of home loan borrowers, especially if it wants to achieve its stated objective of providing ‘Housing for All by 2022’. Understandably, home buyers have high expectations from the interim budget 2019.
What does the middle-class property buyer need, from the interim budget?
Anuj Puri, chairman of ANAROCK Property Consultants, suggests that in order to woo middle-class tax payers (who live in perpetual hope of further relief), the government could offer the following tax benefits:
- “Reduction in income tax slabs and/or
- Higher relief on housing loan rates and/or
- Increase in the deduction limit under Section 80C, from the current amount of Rs 1.5 lakhs a year.”
The exemption limit under Section 80C was last raised in 2014, after a decade-long hiatus and this raises expectations that this route may be revisited in this budget, Puri adds.
Ronak Patel, a self-employed professional from Vadodara, says, “The government should increase the income tax slab from Rs 2.5 lakhs to Rs five lakhs. It is time for the tax slabs to be linked to the inflation rate, so that every year, the common people get tax relief to the extent of increase in the cost of living. This will also help home loan borrowers to repay the loan on time, without compromising on their lifestyle.”
See also: 5 expectations that Budget 2019 must address, to uplift the real estate sector’s sentiment
Expectations, vis-à-vis home loans from the interim budget 2019
At present, home loan borrowers get the deduction benefit under Section 80C of up to Rs 1.5 lakhs in a financial year, which includes principal repayment. The buyer also gets a deduction benefit of up to Rs two lakhs in a financial year under Section 24 against interest payment on the home loan. However, these tax sops are seldom sufficient for home loan borrowers. In the major cities, buying a home by availing of a loan, can be less attractive, in comparison to living in a rented home.
Farshid Cooper, managing director at Spenta Corporation, maintains that “The cap on deductions available to home buyers, on interest paid for the residential property, should be increased from Rs two lakhs to Rs four lakhs or more, thereby, encouraging home buyers to invest in real estate. Also, to address the issue of affordability, stamp duty should be included in the purview of GST.”
Rationalisation of taxes on the purchase of property
Experts point out that the idea of introducing the Goods and Services Tax (GST), was to eliminate multiple taxation. However, in addition to GST on under-construction properties, home buyers are still forced to pay other taxes like stamp duty, which should, ideally, be subsumed within the GST. Arvind Hali, CEO and MD of ART Housing Finance says that the government should focus on some of the long-standing demands of home buyers, such as:
- “Rationalisation of high registration costs.
- Standardisation of property registration cost and processes, across India.
- Introduction of tax sops on an eco-friendly properties and home loans associated with the same.
- Incremental sops on priority sector housing loans under Section 24 and 80C.
- Extension of the credit-linked subsidy scheme for the MIG-1 and MIG-2 segments, up to FY2022.
- Increasing the overall limit of tax deduction on housing loans.”
Besides this, home buyers are also expecting the government to make announcements aimed at improving infrastructure, such as roads, metro rail connectivity and clean water and drainage systems.
Expectation of home buyers from budget 2019
Budget 2018: What do home loan borrowers need
With many first-time home buyers opting for housing loans, we look at some of the measures that the finance minister can consider in the Union Budget for 2018-19, to ease the burden on such buyers and encourage the ‘Housing for All’ mission
January 31, 2018: A large number of first home buyers take the help of home loans, to buy their property. Hence, home loans are a big enabler that supports the generation demand in the real estate sector. Nevertheless, many more steps can be taken, to increase the reach of home loan products to people seeking homes.
Key concerns of home buyers and loan borrowers
“Availability of disposable income, is a major concern for home buyers. Given that most of them belong to the middle-class or lower middle-class, increasing the income tax break, can be of great assistance to a home loan borrower.
“An increase in the IT exemption, from Rs two lakhs to a higher amount, is what we are expecting from the upcoming budget. The government can think of different tax exemption amounts for different tax brackets, or even for different housing categories, to encourage affordable housing and the middle-income group. Another major focus of the budget must be to address the concerns of home buyers in smaller cities and rural areas,” says Sabyasachi Rath, ED and CEO, Essel Home Loans.
Expectations of home loan borrowers, from Budget 2018
Home buyers and experts believe that lower interest rates should definitely be addressed, through some mechanism in the budget. While the Reserve Bank of India (RBI) has reduced rates, the banks and housing finance companies (HFCs) are not effectively passing on or have delayed passing on the lower rates to their customers. Consequently, there is ample room for reduction of interest rates.
Harshil Mehta, joint managing director and CEO of DHFL, says that “While the building blocks are already in place, with the ‘Housing for All by 2022’ initiative, some efforts that will provide additional thrust to the housing finance segment include:
- Deduction for repayment of the principal component of a housing loan, should be removed from Section 80C, to a separate section, with an independent limit of Rs 2,00,000. Currently, the principal repayment is restricted to Rs 1,50,000, along with many other eligible investments. Given that India needs to achieve 7-9 per cent growth, this provides an additional boost to the sector and to individuals borrowing from HFCs.
- Withdrawal of MAT liability under Section 115JB – reducing the direct tax rate for banks and HFCs, can make rates more competitive.”
Experts also suggest that the loss from sale of house property, can be offset from other income, up to Rs two lakhs. The budget can look at increasing this limit, subject to adjustments in income from house property. This will encourage home loan buyers, to purchase second homes, they say.
Greater tax benefits for first-time home buyers who avail of home loans
Currently, there is a uniform exemption across the various brackets, for home buyers who avail of loans. “There is definitely a need to increase the tax benefit, for the lower tax brackets. This may encourage first-time buyers to take the plunge. Moreover, a differentiated exemption for first-time home buyers, will serve to exclude investors from this benefit, giving the advantage to those who are buying homes for self-use,” adds Rath.
Budget 2018: What home loan borrowers want
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