Interim Budget 2019 was a welcome Budget for the common man in particular and for the housing sector in general. Many amendments were specifically targeted to provide a fillip to the housing sector and to increase the common people's net take home pay.
Interest deduction on housing loan
The Interim Budget 2019 provided relief from taxing the notional rental income for the second self-occupied property. The Budget speech specifically clarified that considering the difficulty of the middle class having to maintain families at two locations on account of their jobs, children's education and care of parents, notional rent on such second self-occupied house will be exempt. The move will benefit a lot of people who owned two houses wherein both were occupied by families. However, on one of the houses, the notional rental income was still taxable. In few cases, where the second self-occupied house is under a mortgage burden and huge interest costs are being paid, the change may or may not be beneficial depending on the quantum of interest paid as the overall cap for interest deduction on both the houses is restricted to Rs 2 lakh.
In the upcoming budget on July 5, the government can consider providing interest deduction up to Rs 2 lakh separately for each of self-occupied properties, i.e. a total deduction of up to Rs 4 lakh for two self-occupied properties. Alternatively, the deduction limit for the first self-occupied property can be considered to be increased from Rs 2 lakh to Rs 3 lakh. The tax savings on account of such additional deduction will provide the required liquidity for additional investment through mortgage in the affordable housing sector.
Currently, the deduction for interest paid during the construction period is not allowed. Such pre-construction interest deduction is allowed in five equal instalments from the year in which construction is completed. Further, the overall deduction is again capped at Rs 2 lakh in case of a self-occupied property. The government can consider providing interest deduction even on under construction property up to a specified limit over the year(s) of construction. The same will encourage investments in under-construction projects.
Capital gains exemption
Further, the Interim Budget 2019 also provided once-in-a-lifetime benefit of capital gains exemption by increasing the investment restriction from one property to two properties, for capital gains up to Rs 2 crore. The government in the upcoming Budget can consider increasing the limit of the capital gains from Rs 2 crore to Rs 3 crore. The same will aid in extending the benefit to a larger group of individuals, especially the ones in metropolitan cities.
Deduction on principal repayment of housing loan
The interim Budget 2019 reduced tax burden on the middle class by introducing rebate for individual taxpayers having a taxable annual income up to Rs 5 lakh. The standard deduction for salaried employees was raised from Rs 40,000 to Rs 50,000. The amendments will provide additional take-home pay for individuals leading to additional investments in various assets including the housing sector.
However, currently, the deduction for principal repayment on housing loan is clubbed with other avenues such as provident fund and life insurance with the overall limit capped at Rs 1.5 lakh. The government can consider providing a separate deduction for principal repayment of housing loan. Alternatively, the existing provisions of Section 80EE wherein additional deduction of Rs 50,000 is available if specified conditions are met, can be relaxed. Thus the conditions of loan being sanctioned in the financial year 2016-17, amount of loan not to exceed Rs 35 lakh and value of house property not to exceed Rs 50 lakh can be relaxed to bring additional cases under its coverage.
In the interim Budget 2019, deduction benefits available to developers under Section 80-IBA for projects approved by March 31, 2019, has been extended to March 31, 2020. Thus, if additional measures as discussed above are also introduced in the upcoming Budget, the same will help in alleviating the challenges faced by common man, provide an impetus to the housing sector and will help in meeting the government's plan of housing for all by 2022. It's a wait-and-watch till July 5 on how things finally unfold and whether the common man's challenges are reduced and the housing sector gets the required boost.
(Homi Mistry is Partner, Deloitte India and Jimish Vakharia is Senior Manager with Deloitte Haskins and Sells LLP)Budget Expectations: Real Estate Industry's wish list from Modi 2.0
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