Owing to the stable prices, lower home loan interest rates and diverse housing options, the real estate market seems to be benefiting the property buyers. With the upcoming Union Budget 2022, the demand for home buying is expected to go higher thanks to an increase in tax sops.
A Separate Section for Home Loan Principal Repayment Deduction
Under Section 80C of the Income Tax Act, one can claim a deduction on the home loan principal repayment. Along with home loans, Section 80C states deduction for various other expenses and investments. As of now, the maximum limit for these deductions is ₹1.5 lakh. It has been the same for a long time and is expected to rise with the announcement of the Union Budget 2022.
According to Kanika Gupta Shori, Co-Founder and COO of Square Yards, the government should introduce a separate section under 80C for deduction of ₹1.5 lakhs on home loan principal repayment. As most middle-class taxpayers exhaust their rebate on investments like PF, PPF and life insurance, it limits their scope to claim benefits on loan principal payment. With a separate deduction, home-buying will be much easier for them.
More Deduction on Home Loan Interest
Home loan interest rates are less than 7% per annum currently. However, if someone takes a loan of more than ₹30 lakhs, they will not be able to claim a deduction against the full interest paid in the first few years. This is due to a limit of ₹2 lakhs a year against a deduction of interest rates under Section 24(b) of the Act of Income Tax. As per Anuj Puri, the chairman of ANAROCK Group, the tax rebate of ₹2 lakh should be increased to a minimum of ₹5 lakh. This could boost housing demand particularly in the mid-segment or affordable categories.
Shori agrees with Puri and adds that an increase in the deduction of home loan interest in the upcoming budget will give homebuyers a sense of relief, especially to those already suffering from the substantial price hike of essential commodities. She goes on to explain that the enhancement of the interest cap to ₹5 lakhs will help more homeowners fulfil their dream of owning a home.
Revision of Affordable Housing
Under Sections 80EE and 80EEA, the government initiated more deductions on home loan interest. However, not many were able to make the most of these deductions.
According to Puri, the property price, size and buyer’s income are the three main influencing pillars for housing affordability. This affordability, however, differs between metro cities and non-metro cities. The central bank’s definition of affordability is also based on the loans that are given out by the banks and not the actual financial conditions of the people. So, to make housing more affordable for the general populace, the government should consider redefining affordable housing city-wise and not loan-wise.
A revision in prices would make more residential properties affordable, augmenting the homebuying capabilities of prospective buyers. If Budget 2022 meets these expectations, taxpayers struggling due to inflation and small salary increments will finally have more income in their hands.
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