The importance of the housing sector to India’s Gross Domestic Product (GDP) cannot be overstated. The main employment generator is expected to contribute 13% to the national GDP. With the Union Budget around the corner and the current dispensation’s emphasis on the real estate sector, there is a lot of hope and expectation surrounding reforms and incentives, which will ease the financial burden on home buyers and boost home ownership.
The Indian housing market has shown remarkable resilience and growth in recent years, driven by urbanization, infrastructure development and rising home ownership ambitions.
However, persistent challenges such as high interest rates, affordability gaps and liquidity issues continue to impact borrowers. A number of things can provide targeted relief from the above and give a boost to home ownership.
Enhanced tax benefits for home loan borrowers
Tax incentives are the most important budgetary instrument that promotes homeownership. Currently, borrowers can claim deductions of up to ₹2 lakh per annum under section 24(b) for interest paid on home loans. However, this limit has remained unchanged since 2014, despite rising real estate prices and loan sizes.
Real estate prices, even in tier III and tier IV cities, have increased significantly due to rising input costs and land acquisition prices.
A home loan of ₹50 lakh has an interest component of approx ₹4.2 lakh per annum for the first three years. The limit of ₹2 lakh as deduction has no significant impact on improving affordability. With this in mind, it is necessary to increase this limit ₹2 lakhs ₹4 lakhs.
An additional deduction available on home loans is the principal repayment deduction under section 80C. However, salaried borrowers cannot make sufficient use of this as statutory PF contributions are part of 80C. Therefore, it is advantageous to increase this limit or create a separate limit where it is not combined with other investments.
Reintroduction of Section 80EEA
With the repo rate currently standing at 6.5%, borrowers are faced with interest rates ranging from 8.5% to 9.5%, making the EMIs a significant financial burden. High rates not only reduce affordability, but also discourage potential buyers from entering the housing market. Section 80EEA offered first-time homebuyers an additional deduction on interest paid on home loans. Given the current monetary stance, this may be reintroduced temporarily to reduce the burden of higher EMI outflows on borrowers.
Interest benefits on home loans under the new regime
The Budget 2020 introduced a new regime under Section 115BAC, giving individuals and HUF taxpayers the option to pay income tax at lower rates with fewer exemptions and deductions. However, the deduction for interest on home loans under Section 24 is not available. Including this will help improve affordability for homebuyers.
Supply-side initiatives
Due to the rising costs of construction and land acquisition, there is a lack of affordable housing in major urban centers. To offset rising construction costs, several government measures can be included in the budget, such as transit-oriented development, rationalization of the Goods and Services Tax (GST), single-window clearance and access to better financing.
Stamp duty reductions
Stamp duty makes up a significant portion of the cost of buying a home, often putting off potential buyers. Currently, stamp duties vary from country to country, ranging from 5% to 7%. Although stamp duty is a state subject, the central government can push states to temporarily reduce rates or offer discounts to first-time buyers.
Home loan borrowers are looking optimistically at this Budget, hoping for relief that makes home ownership more feasible and sustainable in India’s evolving economic landscape. This year’s Budget should focus on turning aspirations into reality, and ensuring that owning a home is not just a dream, but a tangible possibility for millions of Indians.
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Opinions are personal.
Amit Diwan is the Chief Distribution Officer of IMGC (India Mortgage Guarantee Corp. Pvt. Ltd.)
