Giving a thrust to affordable homes, the government on Monday proposed full tax rebate on developing such projects under a notified scheme and raised the ceiling of one per cent interest subsidy on home loans upto Rs 15 lakh from the current Rs 10 lakh. In the Budget for 2011-12, Finance Minister Pranab Mukherjee proposed 100 per cent tax deductions on capital expenditure to develop affordable houses under government scheme, thus promoting builders to focus more on such homes.
“Considering the importance of housing, I propose investment linked deduction to businesses, which develop affordable housing under a notified scheme,” he said.
Currently under the section 35AD of the Income Tax Act, a housing project for slum re-development and rehabilitation is incentivised with 100 per cent tax exemption.
The incentives are extended to “developing and building a housing project under a scheme for affordable housing framed by the central government or a state government, as the case may be, and notified by the board in this behalf in accordance with the guidelines as may be prescribed”.
This was stated in the budgetary document. Mukherjee also raised the limit for one per cent interest subsidy on home loans to up to Rs. 15 lakh from the current level of Rs. 10 lakh, a move that could encourage buyers of low cost houses. He also increased the value of houses eligible for availing such subsidy by Rs. 5 lakh to Rs. 25 lakh.
“To further stimulate growth in housing sector, I am liberalising the existing scheme of interest subvention of one per cent on housing loans by extending it to housing loan up to Rs. 15 lakh, where the cost of the house does not exceed Rs. 25 lakh from the present limit of Rs. 10 lakh and Rs. 20 lakh respectively,” he said.
The government also enhanced the existing housing loan limit to Rs. 25 lakh from Rs. 20 lakh under priority sector lending on account of increase in prices of residential properties in urban areas, he added.
On the development of homes for poor, Mukherjee said: “Credit enablement of economically weaker sections (EWS) and LIG (low income group) households is a serious challenge. To address this issue, I propose to create a Mortgage Risk Guarantee Fund under Rajiv Awas Yojana.
“This would guarantee housing loans taken by EWS and LIG households and enhance their credit worthiness”.
Mukherjee also announced enhancing the provision under Rural Housing Fund to Rs. 3,000 crore from the existing Rs. 2,000 crore to provide housing finance in rural areas at competitive rates.
Welcoming the moves, analyst and real estate developers said these proposals are likely to encourage builders to give more emphasis to projects costing up to Rs. 25 lakh.
The country’s largest realty consultant Jones Lang LaSalle India Chairman and Country Head Anuj Puri said firms such as Unitech and Ansals, which are rolling out budget housing, will be benefited by increase of volumes.
“The one per cent interest subvention for home loans up to Rs. 15 lakh from the previous limit of Rs. 10 lakh will come as a relief to home loan borrowers from the LIG segment,” he said, adding raising the priority home loan limit is also a good news for the LIG segment.
Another consultant Cushman & Wakefield said the proposal will help developing affordable houses in smaller cities.
“The announcement…will enable to create a demand for housing in smaller cities, where housing is available for a ticket size of less than Rs. 25 lakhs. This is expected to increase the development momentum in such locations,” Cushman & Wakefield India Managing Director Anurag Mathur said.
Reacting to the proposals, Parsvnath Developers Chairman Pradeep Jain said these will encourage builders to focus more on constructing such projects.
“This is an excellent move. It will really boost developers’ morale to go more for such projects,” he added. Unitech Managing Director Sanjay Chandra said measures such as expanding the coverage of interest subvention scheme and providing 100 per cent deduction in respect of capital expenditure incurred on development of affordable housing, “will certainly aid in boosting the demand and development of affordable housing in the coming months”.
Industry players, however, expressed unhappiness over the government’s decision not to re-introduce the tax exemption scheme to develop affordable houses under the section 80IB(10) of Income Tax Act.
In the 2010-11 Budget, the government had announced a one-time interim relief to the housing and real estate sector by allowing builders to complete affordable housing projects in five years instead of four years to claim deductions on profit under section 80IB(10) of Income Tax Act.
However, this extension is available for housing projects approved on or after April 1, 2005. Under the existing provision of section 80IB(10), 100 per cent deduction is allowed to developers to build affordable housing projects provided the project is sanctioned before March 31, 2008.