Union Budget 2020: Loan measures and incentives can help first time home buyers

By J C Sharma

The year 2019 was challenging for our economy, including the real estate sector. Despite several measures, such as corporate tax reduction, interest rate reductions, Rs. 25,000 crore alternative investment fund (AIF), announced by the Government, the market has remained tough for the entire real estate community. This is due to sluggish demand, non-availability of liquidity and low sentiment. With the upcoming Union Budget 2020-21, we expect the Government to continue to be the catalyst for the sector by providing long-term solutions to stimulate demand for housing.

Some of the key areas that should be addressed in the upcoming budget include:

• Affordable Housing: While the Government has been bullish about the affordable housing segment, we the value limit of affordable housing at Rs. 45 lakh is an obstacle for this segment. In cities such as Bengaluru, the income limit of Rs. 45 lakh are unrealistic due to variable land prices in different cities as well as locations within a city. Similarly, the eligibility criteria under the section 80EEA for additional interest deduction of Rs. 1.50 lakh on home loan borrowed up to 31^st March, 2020 – stamp value of the unit to be within Rs. 45 lakh and the tax payer should be a first-time home buyer and does not own any other residential property as on the date of the sanction of home loan – cannot be applied across all projects or locations. Therefore, this price cap should be removed or should be up to Rs. 75 lakh along with the removal of the two conditions for availing additional interest deduction.

The affordable housing segment should be defined based on the area and not the price. This will help tap many mid-income home buyers looking to invest in a home.

• Other Tax Benefits for Home Buyers and Developers: To boost housing demand and the sector, we believe that the deduction on principal repayment of housing loan up to Rs. 5 lakh per annum should be considered for exemption, in addition to the current Rs. 1.50 lakh per annum under section 80C of the IT Act. In addition to this, if the set-off limit in case of loss from ‘house property’, both rented and self-occupied, against any other head of income should be increased to Rs. 5 lakh. This will provide much-needed impetus to the home buyers. Further, it is suggested that 100% exemption on home loan interest instead of the current limit of Rs. 2 lakh is should be considered. Similarly, the timeline for deduction should be extended. The current period for availing deduction is between 1^st April 2016 and 31^st March 2017, with a limit of Rs. 50,000. Extension of the timeframe for availing loan, increasing the limit of deduction along with the maximum value of loan and value of the residential house for tax incentives are much-needed steps to encourage the first-time home buyers.

Rental housing is yet another important aspect that requires attention. To augment rental housing, we suggest that 100% interest on home loans to be allowed as a deduction for second and third homes, if they are rented for a period of nine months during the year, except self-occupied.

Further, during the Interim Budget, the Government had proposed to increase the benefit of rollover of capital gains under section 54 of the Income Tax Act from investment in one residential house to two residential houses for a tax payer having capital gains up to Rs. 2 crore. Extending such benefit to two homes under the capital gain arising on sale of any long-term capital asset (54F IT Act) will push the home buyers to purchase a second home for long-term investment.

Likewise, benefits should be extended to the developers as well, especially in the light of liquidity challenges. One of these areas is unsold inventory. While the Government had announced a relief by proposing not to charge it under income tax for a period of 2 years from the end of the year in which certificate of completion is obtained, we believe, it should be excluded completely from income tax liability in the current scenario. Further, the real estate business should be covered under the 72A of the IT Act for the benefit of carry forward and set-off accumulated loss and unabsorbed depreciation in Merger and Acquisition (M&A) transactions. This will provide the right impetus to developers to consider M&A for business expansion.

• Liquidity Relief: Resolution of the current liquidity issue should be prioritised. The 25,000 crore AIF should be disbursed at the earliest. More importantly, there is a need for a long-term solution, such as restructuring of loans in the need of the hour.

We appreciate the steps taken so far by the Government and hope that the Union Budget addresses the concerns highlighted by the sector. It will help revive the demand and enable the real estate sector to play a critical role in driving the Indian economy.

(J C Sharma is the Vice Chairman and Managing Director of SOBHA Limited)