Union Budget 2026: NITI Aayog pushes 100% tax break for affordable housing builders

Budget expectations: As the Union Budget 2026 takes shape, NITI Aayog has stepped up calls for a renewed policy push to unlock India’s affordable housing segment. Working closely with the Ministry of Housing and Urban Affairs, the government think tank has outlined a set of fiscal and regulatory measures aimed at easing long-standing constraints faced by both developers and homebuyers in the low-income housing market.

The proposals come at a time when rising land prices, funding challenges and thin developer margins have slowed fresh supply, even as demand from economically weaker sections (EWS) and low-income groups (LIG) continues to grow.

Tax breaks for developers

At the centre of NITI Aayog’s recommendations is the reintroduction of a 100% tax exemption for developers undertaking approved affordable housing projects. The move is intended to improve project viability and attract greater private sector participation in a segment often viewed as high-risk and low-return.

The Aayog has also urged the government to restore the benefits of Section 80-IBA, which offered tax incentives to affordable housing developers between 2016 and 2022. According to the report, reviving this provision could provide a direct fiscal push to the sector, helping builders offset rising construction and compliance costs while accelerating project launches.

Expanding credit access

On the demand side, NITI Aayog has called for doubling the loan limit under the Credit Risk Guarantee Fund Scheme for Low Income Housing (CRGFTLIH) from ₹20 lakh to ₹40 lakh. This, it says, would significantly widen access to home loans for EWS and LIG households that currently struggle to secure formal credit.

The think tank has also proposed allowing the National Housing Bank to issue tax-free bonds under Section 54EC, with proceeds earmarked for concessional funding to affordable housing projects. This could lower borrowing costs for developers and ultimately translate into more competitively priced homes for buyers.

Incentives for investors and REITs

To attract long-term capital into affordable housing, NITI Aayog has suggested tax exemptions on capital gains and rental income for investors in REITs focused on this segment. The aim is to deepen the pool of institutional and retail investment, reduce the cost of capital for developers and make large-scale affordable housing financially viable.

By strengthening the investment ecosystem, the Aayog believes the sector can move away from dependence on limited public funding towards a more sustainable, market-driven model.

Cutting transaction and land-use costs

A major thrust of the proposals is on lowering non-construction costs, which often account for a significant share of home prices. NITI Aayog has recommended exemptions from charges for change of land use where land is used exclusively for affordable housing and at least 50% of the permissible FAR is utilised.

It has also called for waivers on stamp duty and registration charges for homes built under Pradhan Mantri Awas Yojana–Urban 2.0 and other designated affordable housing projects. These steps could materially reduce the upfront burden on first-time buyers and improve affordability at the bottom end of the market.

Tackling structural bottlenecks

Beyond fiscal incentives, the report flags deeper issues within the housing finance ecosystem. It notes that both households and developers face systemic barriers that make affordable housing a challenging proposition, marked by higher risk and lower returns compared to mid-income and premium projects.

By realigning tax policy, credit support and regulatory costs, the Aayog argues that the government can reshape the economics of affordable housing, making it more attractive for builders while expanding access for millions of aspiring homeowners.

A potential Budget 2026 inflection point

If adopted in Budget 2026, these measures could mark one of the most significant policy resets for affordable housing in recent years. NITI Aayog believes the combined impact of tax exemptions, cheaper finance and lower transaction costs would “meaningfully reduce the price of the lowest end of housing” and restore momentum in a segment critical to India’s urban growth story.

For policymakers, the message is clear: reviving affordable housing is not just a social imperative, but a strategic economic lever—one that could stimulate construction activity, generate employment and bring home ownership within reach for millions of Indian families.