While the interim Budget (presented on Feb 1, 2024) provided some respite to taxpayers by waiving some limited outstanding demands for the past years up to FY 2015-16, it did not provide any specific tax relief to taxpayers. Hence, all eyes are on the upcoming Union Budget 2024 to be announced in July 2024.
India’s current real estate sector is experiencing a mix of challenges and opportunities. One of the major opportunities in the same is the growing demand for affordable housing, driven by government initiatives such as PMAY (Pradhan Mantri Awas Yojana) and urbanisation trends.
Also read: What homeowners want from Budget 2024
How the special relief on affordable housing started
The government introduced the benefit of mortgage interest deduction for first-time residential home buyers under Section 80EE of the Income-tax Act, 1961 (“the Act”) in FY 2016-17. The benefit under Section 80EE is limited to deduction of interest paid of INR 50,000, for any loan sanctioned from a financial institution between 1 April 2016 and 31 March 2017. Further, the value of such residential house-property should not exceed INR 50 Lakhs and the amount of loan sanctioned for such residential property should not exceed INR 35 Lakhs. Deduction can be claimed till the repayment of loan and the deduction for the same interest cannot be claimed under any other section of the Act.
The targeted tax relief got bigger with time
In Finance Act 2019, under its objective of ‘Housing for All”, the government extended the deduction for mortgage interest paid on low-cost housing loans taken during the period between 1 April 2019 and 31 March 2020, through a newly introduced section 80EEA. The benefit under Section 80EEA is limited to deduction of interest paid of INR 150,000 for any loan sanctioned from a financial institution between the said period. As in the case of Section 80EE, the benefit under Section 80EEA is also limited to first-time residential home buyers only. While there is no limit on the amount of loan sanctioned by a financial institution, the stamp duty value of such residential house property, however, should not exceed INR 45 Lakh.Since numerous assessees claimed the said deduction, it was a success and consequently the government extended the last day of loan sanction from 31 March 2020 to 31 March 2022 in the Finance Act 2021 such that more individuals could take benefit of the same.Due to the above deductions, along with other deductions such as for mortgage interest payment and principal repayment under Section 24 and Section 80C of the Act respectively, taxpayers have substantial opportunities to optimise their tax liabilities specifically for the expenditure on purchase of residential property.Also read: How Budget 2024 could simplify capital gains tax
Taxpayers expect the expired tax benefits to be back with enhanced limit
While the time limit for borrowing to qualify for deduction under this section has been exhausted, taxpayers have high expectations from the upcoming Union Budget, considering that this will be the first Budget by the government in their third term. The government may plan to reintroduce this benefit under Section 80EEA to claim deduction of interest paid for any loan sanctioned from a financial institution up to 31 March 2026, such that more individuals can avail the benefit of the ‘affordable housing’ scheme and thus, purchase their own property and avail tax benefits in return.
To increase the demand for affordable housing, the government may consider raising the limit of the stamp duty value of the property from INR 45 Lakh, as this would expand the benefits for home buyers and boost end user demand. Further, while setting the limit for the same, the rising cost of property should be considered, to ensure equitable benefit to all.
Further, while the said deduction is only available as of now in the old tax regime, it should be introduced in the new tax regime as well, such that a universal benefit of purchase of affordable housing be provided to all individuals regardless of income levels.
The nation awaits the announcement of Union Budget 2024 with great anticipation, eager for potential reforms and incentives that could profoundly influence the economic landscape in the year ahead.
(The author is Director with Deloitte India.)