To boost demand in the affordable housing category and provide more tax benefits to home buyers, the government proposed an additional deduction of Rs 50,000 on interest component of home loan EMI for first-time buyers in cases where the property is valued up to Rs 50 lakh and the sanctioned loan does not cross Rs 35 lakh.
While home buyers already are allowed to claim tax deduction of up to Rs 2 lakh on the interest component of the loan, the move will take the overall deduction benefit to Rs 2.5 lakh. Individuals who qualify for this benefit and fall in the highest tax bracket will witness an additional tax saving of Rs 15,450 on account of the increase in the deduction limit by Rs 50,000 for the year.
“In furtherance of the goal of the government of providing ‘housing for all’, it is proposed to incentivise first-home buyers availing home loans, by providing additional deduction in respect of interest on loan taken for residential house property from any financial institution up to Rs 50,000,” the budget proposed.
In another move that will reduce the cost of houses in the affordable category, the government exempted service tax on all housing projects under ‘Housing for All’ scheme and low cost houses up to a carpet area of 60 square metres under any housing scheme of the central and the state government, with effect from March 1, 2016.
Looking to push supply of affordable houses, the finance minister also proposed 100 per cent deduction for profits to an undertaking from a housing project for flats up to 30 sq metres in four metros and 60 sq metres in other cities. The deduction would be applicable on the projects approved during June 2016 to March 2019, and completed within three years of the approval. It has, however, proposed to impose Minimum Alternate Tax on these undertakings.
In line with the industry’s demand to provide the benefit on interest component of home loan even in case the developer delays the delivery and offers possession after a period of three years, the government decided provide the same.
“In view of the fact that housing projects often take longer time for completion, it is proposed that second proviso of clause (b) of section 24 be amended to provide that the deduction under the said proviso on account of interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed,” the budget proposed.
The move is expected to benefit a number of home buyers who have seen a delay in the delivery of their house by the developer.
In another move that is likely to stimulate housing activity and ease the funding needs of the real estate sector, the government announced to facilitate investments in Real Estate Investment Trusts (REITs). It proposed that: “Any distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax,” said the finance minister, Arun Jaitley.
Earlier, in September 2014, market regulator Sebi had notified norms for listing of REITs that would help attract more funds in a transparent manner into the real estate sector. REITs, which can be listed on stock exchanges, would help channelise both domestic and overseas investments into commercial real estate projects. Industry experts say that REITs have not taken-off as DDT remained a concern.