Housing loans get cheaper

Finance minister announces fresh measures to spur economic growth

Blending a little bit of populism with strategy to revive the economy, in particular the construction industry, Mukherjee offered the interest subsidy on housing loans up to Rs 10 lakh for houses that cost up to Rs 20 lakh.

The minister’s additional incentive to the housing sector came during his reply to a two-day debate on the Lok Sabha on the budget he had presented to the House on July 6.

While allocating a fund of Rs 1,000 crore for the proposed interest subvention scheme, which will be available for one year, Mukherjee said the interest subsidy would be routed through commercial banks and housing financing firms registered with the National Housing Bank (NHB).

While on the one hand this measure will cheer the low and middle-income groups dreaming to own a house, on the other, it would spur demand in the housing sector which in turn would stimulate the cycle of demand in other crucial sectors like steel and cement.

To stimulate the housing sector Mukherjee also announced tax holidays for developers in respect of profits earned from projects approved between April 1, 2007, to March 31, 2008, provided these projects are completed on or before March 31, 2012. The minister expected that developers would pass on the benefit of the tax holiday to home buyers and help revive the real estate sector.

The government, it may be recalled, had already worked with the RBI and other financial institutions, over the last few months to bring down the interest rate on housing loans in order to revive the sector that has been badly hit by the slowdown.

In his budget three weeks ago, Mukherjee had announced important concessions to the cement and steel industry that supply crucial inputs to the construction sector. Besides the housing sector, the minister also rolled out tax benefits for key sectors of the economy like roads, energy and food-processing industries as he unveiled a multi-pronged stimulus package to further prompt the growth momentum. The Lower House approved the Finance Bill that contains Mukherjee’s tax proposals, both direct and indirect, for the fiscal 2009-10, by a voice vote, thus completing the process for approval of Budget 2009-10.

Mukherjee announced extension of tax holiday for industrial park schemes by two years up to the end of March 2011. Analysts believe this measure would immensely boost the development of the infrastructure sector. To promote the road and highway sector, which also plays a vital role in boosting overall growth, Mukherjee exempted the repair and maintenance of roads and highways from the ambit of service tax with immediate effect.
Providing some relief to trade and industry, the minister announced that imposition of service tax on new services, as proposed in the Budget, would be made effective from September 1, this year, thus giving enough time to industry to prepare the accounting process as well as necessary software for calculating service tax.

Mukherjee also announced extension of tax holidays on profits earned by firms exploring gas under the fourth round of coal bed methane launched through the award of blocks under the new exploration licensing policy. This tax benefit will be available prospectively from  2010-11. Mukherjee extended the benefit of deductions in respect of interest paid on education loan for higher education to legal guardians of students under Section 80E of the IT Act.

As a gesture to provide income tax relief to disabled persons, Mukherjee announced that eligible deductions for assesses with severe disability will be raised from Rs 75,000 to Rs 1 lakh.  Noting that there was neither a need to press the panic button nor paint a rosy picture of the economy, he said: “We are still not out of the woods. The situation is still difficult.”

DH News Service

Tax concessions

* Inclusion of new services under service tax only from Sept 1
*Maintenance of road, highways exempted from service tax net
* Interest deduction on education loan extended to legal guardians of students
* Tax holiday on industrial parks till March 31, 2011
*Tax relief to housing if ongoing projects are completed before 2012
*Enhanced interest subsidy for buying houses of less than Rs 20 lakh
*Income tax deduction hiked for people with severe disability