Budget 2026: Real estate industry switches tracks to affordable housing; seeks policy push

Budget 2026 is round the corner, and the real estate, construction and city management sectors have big expectations. Even as global disruptions and trade tariffs have taken over the world, it is important to nurture industries that generate jobs, facilitate manufacturing and big business, and form the backbone of a self-reliant India. Currently contributing 7–8% of GDP and poised to grow to 13–15% by 2030, the real estate industry is a key provider of jobs and assets in the country.

Rental housing

Both the National Real Estate Development Council (Naredco) and the Confederation of Real Estate Developers’ Associations of India (CREDAI) have sought government intervention in the rental housing market.

Shekhar Patel, President, CREDAI, called for targeted reforms to sustain residential supply and restore housing affordability. While demand for affordable housing remains strong, supply is constrained due to the definition, which has remained unchanged since 2017.

Naredco Chairman Niranjan Hiranandani has specifically called for the “removal of the stringent conditions under Section 80IBA(6)(da) of the Finance Bill and recommended extending the benefit period for affordable rental housing projects to at least five years. This will instil developer confidence and allow time to deliver quality rental stock. Further, rental income from properties held as stock-in-trade should be exempt from taxation for five years after construction completion, recognising the long-term nature of these investments.”

Section 80IBA(6) of the Income-tax Act contains definitions and explanations of terms used in the section, such as what constitutes a housing project and how “carpet area” is defined. Clause (da) within subsection (6) specifies that a project qualifies for the Section 80IBA deduction only if it is the sole project on that land parcel.

Deduction under Section 80IBA offers a tax benefit of 100% of profits to developers meeting all eligibility conditions. Sub-clauses such as 80IBA(6)(da) ensure that the benefit is claimed only for affordable housing projects as defined, and not for a portion of a larger, mixed-use development.

Affordable housing

After years dominated by premium and luxury projects, the government is expected to refocus on affordable housing units priced up to ₹45 lakh, with a carpet area of up to 60 sq m in metro cities and 90 sq m in non-metros. These projects must be sanctioned within a specified window and completed on time. The minimum plot size for such projects is 1,000 sq m in metros and 2,000 sq m in non-metros.

This definition has remained unchanged since 2017, despite rising land prices and higher building material and labour costs. The 100% tax deduction on profits from such projects was introduced to make this segment attractive to developers, but industry players argue that outdated thresholds have reduced its effectiveness.

Stamp duty

On stamp duty, Hiranandani said the current practice of taxation based on circle or ready reckoner rates—which are often higher than actual market values—unduly burdens buyers and sellers. Raising the tolerance threshold for deemed taxation under Section 43CA from 10% to 25% would ease this pressure.

Under current law, stamp duty and registration are calculated on the circle rate, which often exceeds transaction values, especially during market slowdowns. If the difference between the circle rate and the actual transaction value exceeds 10%, the higher value becomes binding for tax computation, forcing developers to pay tax on income not actually realised. Increasing this tolerance band to 25% would reduce such distortions.

Alternate tax benefits

The industry’s intent to target lower-priced housing, including Lower Income Group (LIG) and Economically Weaker Section (EWS) categories, is clear in this year’s pre-Budget wishlist. With luxury housing sales slowing, industry bodies have sought incentives to bring lower-middle-income housing into the affordable bracket.

Naredco has proposed alternate tax benefit regimes for large housing and infrastructure projects to attract private investment. It has recommended easing dividend taxation for resident investors and capping tax rates for non-corporate entities such as LLPs and AOPs at 25%, with individual tax rates capped at 30%.

Home loan deductions and GST relief

CREDAI has proposed increasing the home loan interest deduction limit from ₹2 lakh to ₹4–6 lakh and extending this benefit to the new tax regime under Section 115BAC. “Given inflation and soaring home prices, increasing the home loan interest deduction limit from ₹2 lakh to ₹5 lakh will provide much-needed relief to homeowners,” Hiranandani said.

Although GST is not typically part of the Union Budget, industry bodies have also sought rationalisation of GST rates on under-construction properties and clarity on key compliance issues.

Predictability and infrastructure alignment

Ashwinder Singh, Chairman, CII Real Estate Committee and Advisor, National Association of Realtors, emphasised the need for predictability rather than incentives. “Stable taxation, faster approvals and construction finance that supports last-mile delivery are critical. Cities must be recognised as economic engines, not administrative units,” he said.

Sukhraj Nahar, President, CREDAI-MCHI, stressed the importance of alignment between infrastructure investment, housing supply and faster approvals, particularly for the Mumbai Metropolitan Region.

AI facilitation

As real estate expands into specialised segments such as data centres, logistics and shared spaces, AI infrastructure has emerged as a key demand. Sharad Sanghi of Neysa said policy friction continues to slow the development of AI-ready data centres, citing delays in land, power and water approvals. Budgetary support for AI infrastructure, streamlined approvals and foundational skilling were flagged as critical to prevent India from falling behind global peers.

Sheeshram Yadav, Managing Director, Yugen Infra, echoed the call for future-oriented reforms, including improved CLSS frameworks, incentives for green buildings, simplified GST structures and better access to housing finance to ease liquidity constraints across the sector.