In continuation to my earlier article on the income tax benefits extended for owning a house, here is the article which explains various other incentives provided for owning/constructing residential house. Let us discuss the various non income tax incentives/facilities provided for owning a residential house as well as tax benefits provided to a builder or developer.
Housing loans to Individuals:
Of various lending by the financial institutions the interest rate on home loan are cheaper than money lent for other purposes including for your business. The lower lending rates help an ordinary citizen to fulfill his dream of owning a house.
In addition to lower interest rates, RBI mandates all banks to lend certain percentage of their overall lending to priority sectors which covers lending for purchase, construction or repairs of residential house upto a certain threshold.
Loans to individuals up to ₹ 28 lakh in cities with population of 10 lakh and above, for purchase/construction of a dwelling unit per family, are considered as priority sector provided cost of the house does not exceed ₹ 35 lakh. For rural area the limit of loan is ₹ 20 lakh and the for cost of the house it is ₹ 25 lakh. Though the residential houses purchased in the urban area specially the metro cities may not fit into the criteria of 28 lacs overall cost but such mandatory lending will certainly helps the people in rural area or in smaller cities to own a house.
Likewise the priority sector lending covers money lent for repairs of the residential house as well and covers loans up to ₹5 lakh in metropolitan areas and up to ₹2 lakh in other area.
Lending to the builder/promoters
Any amount lent to promoter/builder for construction of house for poor section of the society are also treated as priority sector lending if the total cost of the house does not exceed ₹10 lakh per residential unit. Any family within income of not more than Rs. 2 lakh per year qualify as poor sections of the society, referred to as “economically weaker sections and low income groups” for this purpose . Even any refinance done by banks to approved housing finance company is treated as priority lending subject to a ceiling ₹10 lakh per borrower.
Moreover money lent to any governmental agency for construction of residential units for slum clearance and rehabilitation of slum dwellers upto ₹10 lakh per dwelling unit are also treated as priority sector lending.
Subvention of interest
In addition to mandatory priority sector lending, the government also provides subvention of interest on home loans to specified category thus partly subsidising the interest cost to the buyer. Under the interest subvention scheme the government provides an interest subvention of 6.50% of affordable housing to economically weaker sections of the society for loans upto Rs. 6 lacs. So the borrower from weaker section has to only bear the interest above 6.50% per annum.
Benefits to Promoters/builder for construction of affordable house
The latest budget of 2016 has provided for exempting 100% of the profits derived by the builder/promoter from a residential housing project. Section 80IBA of the Income Tax Act, 1961, under which these benefits are provided stipulates that the size of the residential units should not exceed 30 square meter in area covered under four metro cities and within 25 kilometres from the municipal limits of these metro cities. For other places the size of the residential unit should not exceed 60 Square metres. The project needs to be approved and needs to be completed within a period of three years from the date of approval of the plans. This goes to prove that the government wants the supply of residential units to go up help you own a residential house.
Benefits of service tax
In order to make owning a house affordable, the government has provided for various benefits service tax as well. There is no service tax for purchase of fully constructed house from the developer. Likewise the services rendered for construction of a single residential unit like bungalow or a house for occupation of a single family are also fully exempt. This exemption is not available in case the single units is part of a residential complex where similar residential units are constructed by the developer or builder.
Moreover the government extends the benefit of exemption from payment of services tax in case of the housing projects covered under the “Pradhan Mantri Awas Yojana”. Similar exemption is available for construction of a residential units, having carpet area of not more than 60 Square metres, in a project duly approved.
Even in cases where the service tax is levied, it is not levied on the full value of the cost of the residential property but only on 30 % of the value of the residential house.
From the above it becomes amply clear that the government wants you to own a house and has provided various incentives under banking as well as services tax laws. It also provides tax incentives to the developer to construct affordable houses to ensure every one has roof over his head.
(The author is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. Views are personal., He can be reached at email@example.com)