Dear Mister FM, Homebuyers Want You To Do Some Tax Tweak In This Budget

The combined effect of demonetisation and the Goods and Services Tax regime on the country's economy notwithstanding, India will grow at 7.4 per cent in 2018 against China's 6.8 per cent, says the International Monetary Fund, making it the fastest-growing country among emerging economies.  Now, the responsibility to make India grow largely lies on the young shoulders of the middle-class urban Indians. A part of this young crowd are people who have moved to big cities from Tier-II and Tier-III districts and are nurturing the hopes of replacing their rented homes with a place they would be able to call their own. They should be the target audience when Finance Minister Arun Jaitley presents the Union Budget 2018-19 on Thursday.  

How could the FM help them materialise their dream?

What first-timers should get

Before one is in a position to apply for a home loan, one has to invest in other channels to save on tax deductions. The commonest of them all is investing in life-insurance schemes, public provident fund and medical insurance policies.  These benefits are claimed under Section 80C of the Income Tax (I-T) Act. Under the same Section, home loan borrowers can claim deductions for repayment of the principle amount. The stamp duty and registration charges that buyers have to pay are also allowed as tax deduction under this Section 80C even if the money is paid from your own pocket.

Since the upper of deductions is set at Rs 1.5 lakh, buyers often fail to get much benefit under this Section when they apply for home loans while the EMI burden leaves them between a rock and a hard place.

Also, it is only on ready-to-move-in homes that an owner could claim the benefits under this Section. In case one has invested in an under-construction property, they would be able to claim the benefits only after a completion certificate is issued. Till that time, the burden on the buyer is immense.

Since the GST must also be paid by buyers of under-construction properties (12 per cent of the total value if you do not apply for the credit-linked subsidy scheme under the Pradhan Mantri Awas Yojana) , their monetary situation faces challenges that are quite extreme in nature.

Taking that into account, there is an urgent need to increase the limit of tax deductions individuals can claim under this Section. Young borrowers are of the view that the limit could be increased to Rs 5 lakh when the FM gets talking about tax provisions in his Budget Speech.

On the interest component that a home loan borrower pays, deductions could be claimed under Section 24 and Section 80EE  of the I-T Act. The latter Section, meant for the first-time homebuyer, became effective only after April 2013.

Let us see that first.

Under Section 24, a first-time homebuyer can claim deductions of up to Rs 50,000 on the interest component he pays towards loan repayment. Before one is able to do that, one has to meet several conditions. The property worth must not below Rs 50 lakh and the amount of loan must not lower than Rs 35 lakh. Also, the benefit of this deduction would be available till the time the repayment of the loan continues.

Some tweaking is also needed in Section 80EE, too, if Minister Jaitley wants the fence-sitters to turn into real buyers. The cap of deductions under this head must be raised to at least Rs 2 lakh to encourage young buyers to invest in real estate.

Second-timers need encouragement, too

Those who take a second home loan and are paying interest can claim deductions under Section 24. The upper limit of deductions under this Section is set at Rs 2 lakh in case the property is self-occupied. Unlike Section 80C, which allows deduction on payment basis, benefits under Section 24 must be claimed on yearly basis even if no payment has been made during the year. In case you fail to acquire/construct the property within five years of taking the loan, the deduction limit would be dragged own to Rs 30,000.

To keep things going in the real estate sector, rationalisation of this Section is also required. It is worth mentioning here that it was the luxury housing segment that kept the sector going while a slowdown dragged it down. Perks are also required to keep this buyer segment interested.