Housing for all by 2022 has been one of the important drivers of the government’s long-term developmental plans. To continue the momentum of infrastructure creation, the Budget is expected to focus on addressing the needs of the common man, especially in terms of extending tax incentives for housing.
Expansion of eligible income tax deductions can incentivise homebuyers. In the recent past, tax laws were amended so as to restrict the loss from house property that can be set off with other income to Rs 2 lakh. Even though the balance loss could be carried forward for set off, it can be adjusted only against income from house property. For a common man, this is a significant impediment. Perhaps the government could consider restoring the old provisions and remove the cap of Rs 2 lakh relating to house property loss that can be set off with other income.
With housing loan interest rates well over 8.20 percent, the existing cap on the deduction allowed for the interest paid on loan taken for a self-occupied property is passé and insufficient to absorb the interest cost incurred by the taxpayer. As a relief measure, the amount of deduction available on the interest paid on such loan could be increased. The government could consider doubling the existing value to help taxpayers cope with inflation.
Apart from interest deduction, presently principal repayment of housing loan is allowed as a deduction under section 80C within the overall limit of Rs 1.50 lakh.
The limit of Rs 1.50 lakh was fixed in the year 2014. Section 80C besides providing a deduction for housing loan principal repayment covers a number of eligible investments like school fees, life insurance premiums, employee contribution to provident fund (PF), contributions to public provident fund, etc.
For the working class, typically, these investments exhaust the limit of Rs 1.50 lakh. As a result, housing loan principal repayment may not be providing any additional benefit/tax savings. Hence, the government could either enhance the overall threshold available for deduction or carve out a separate deduction for home loan repayment.
Similarly, an additional benefit of Rs 50,000 towards the interest paid on home loan taken during the financial year 2016-17 (by first-time eligible home buyers) is also allowed as deduction. This benefit could be extended to subsequent years beyond March 31, 2017. The possibility of increasing the cap on the value of the residential property and loan taken for such property could also be pondered.
Considering the increasing property prices, home buyers are forced to opt for a higher home loan. With the Union government relying on projects and schemes like the Smart Cities Project and the Pradhan Mantri Awas Yojana to facilitate housing for all, it could also be a good move to push for lower interest rates on housing loans. This would encourage taxpayers to invest in new homes and also boost the real estate industry.
Every year, the Union budget has its hits and misses. It would be a masterstroke if the budget is populist, especially if it caters to the middle class whose expectations are to save more and better. It would also send out a clear message on the focus and priorities of the government. Considering that the finance minister has always pledged relief for the middle class taxpayers in his earlier budgets, we would have to wait and watch to find out if 2019 would be the year of the common man.
(The author is partner, Deloitte India; Radhika Viswanathan, director with Deloitte Haskins & Sells LLP and Sowmya M, assistant manager with Deloitte Haskins & Sells LLP also contributed to the article)