Budget expectations: NAREDCO seeks higher home loan interest deduction, revival of tax settlement body

Budget 2026: As the Union Budget approaches, the National Real Estate Development Council (NAREDCO) has pitched for targeted tax reforms to revive housing demand and improve investor confidence in India’s real estate sector. In its recommendations to the Union Ministry of Finance, the apex realty body has sought a higher limit for interest deduction on home loans and the reinstatement of the Income Tax Settlement Commission.

The proposals come amid sustained concerns over affordability, project delays and slowing end-user demand, even as the sector continues to play a crucial role in employment generation and urban development. The recommendations were announced alongside NAREDCO’s Urban and Real Estate Development Conclave, a national-level forum organised under the aegis of the Union Ministry of Housing and Urban Affairs.

Deductions on housing loans

A key demand relates to rationalising deductions on housing loan interest for owner-occupied properties. Currently, under Section 24(b) of the Income Tax Act, 1961 — renumbered as Section 22 of the Income Tax Act, 2025 — interest paid on housing loans is fully deductible in the case of rented properties. However, for owner-occupied houses, the deduction is capped at Rs 2 lakh, subject to the condition that construction or acquisition is completed within five years from the end of the financial year in which the loan was taken.

Interest deduction

NAREDCO has recommended that the interest deduction for owner-occupied homes be increased significantly. “At least the limit of Rs 2 lakh should be raised to Rs 5 lakh or more for owner-occupied houses. Also, the five-year period for acquisition or completion from the year of borrowing should be dispensed with,” the body said in its submission to the finance ministry.

It further suggested that the deduction on account of interest payment should be allowed from the year in which capital is borrowed, similar to the treatment accorded to principal repayment under Section 80C, and should extend to the full interest paid for at least one house.

Commenting on the proposals, NAREDCO President Parveen Jain said rationalising housing finance taxation would directly stimulate demand. “The real estate sector plays a critical role in India’s economic growth, employment generation and urban transformation. Rationalising taxation, especially on housing finance, will provide much-needed impetus to a sector grappling with a significant housing shortage and restore buyer confidence,” he said.

Income-tax Settlement Commission

The industry body has also called for the reinstatement of the Income-tax Settlement Commission, which was discontinued with effect from February 1, 2021. Established in 1976, the commission offered taxpayers a one-time opportunity to settle disputes with tax authorities and obtain relief from penalties and prosecution. 

NAREDCO noted that existing dispute resolution schemes exclude certain cases, including those where lower appellate authorities disposed of appeals before July 22, 2024, even though the window for further appeals remains open.

“Restoring and strengthening dispute resolution mechanisms like the Income-tax Settlement Commission is critical for fostering a transparent, investor-friendly environment,” said Dr Niranjan Hiranandani, Chairman, NAREDCO.

The Income Tax Settlement Commission (ITSC) was a quasi-judicial authority created to resolve complex tax disputes and reduce prolonged litigation between taxpayers and the revenue authorities. Its establishment was based on the recommendations of the Direct Taxes Enquiry Committee, popularly known as the Wanchoo Committee, which emphasised that the door for compromise for an errant taxpayer should not remain permanently closed.

The commission comprised a chairman, vice-chairmen and other members, as deemed necessary by the Central Government. An assessee could approach the ITSC at any stage of proceedings by filing an application in the prescribed format. Such an application was required to contain a full and true disclosure of previously undisclosed income, the manner in which the income was derived, the additional tax payable, and other prescribed particulars, along with upfront payment of applicable tax and interest.

Upon receipt, the commission could either admit or reject the application. Once admitted, the ITSC assumed exclusive jurisdiction over the case, and all proceedings by the Assessing Officer were stayed until the matter was finally settled.