Extend tax benefits under section 80 C to Housing finance companies

Housing finance companies providing credit to low-income customers for affordable housing are an important part of the financial ecosystem due to their role in fomenting financial inclusion. These companies despite doing a commendable job alongside universal banks in the field of financial inclusion have to adhere to different set of regulations which hinders their ability to cater to the low and medium income category population effectively. This makes it very essential for the government to come out with policy initiatives to create a level-playing field for the sector and make it competitive.

We recommend the following steps to help them work towards the cause of financial inclusion more effectively.

a. Refinance to HFC's - Given that HFC's operate at a higher cost structure, these companies should be permitted to offer loans at a higher spread, for better operational viability. Steps should also be taken to bring about a level playing field between private HFCs and universal banks. NHB could work with RBI to regulate, develop and meet the capital requirements of HFCs so that the purpose of disbursing finance at an affordable rate for housing can be achieved instead of just growing outstanding loan book.

HFC's currently do not carry any tax benefits on the Fixed Deposit unlike Bank FD's which enjoy tax benefit under Section 80C of the Income Tax Act for FD's of 5 year tenure. We recommend extending such benefit to HFC's to bring them at par with Banks.

b. As HFCs serve both serve formal and informal low-income customers, we recommend leveraging these firms catering to LMI customers to disburse interest subsidies. Government could also consider bringing parity in norms for both HFCs and Universal banks for disbursing funds.

c. The credit risk guarantee trust fund ensures that the loan amount, not exceeding Rs. 5 lakh per loan, shall be made available both new or existing individual borrowers from the economically weaker sections (EWS) and LIG without any collateral and/or third party guarantees. As per the scheme, loans can be taken for purposes of home improvement, construction, acquisition and purchase of new or second hand dwelling units of size up to 430 sq. ft. carpet area. We recommend enhancing thislimit from the current Rs. 5 Lakhs to ensure easy access to funds to LMI customers and ensure affordable housing to them.