Budget 2016: What Modi government should do to make homes affordable for common man

The need for housing units in India has steadily increased over the years. First of all, culturally, everyone who is employed aspires to buy a house for themselves, to get away from clutches of house owners. Since, India is a thickly populated country where the percentage of working class increases day by day. With the support of the government, there are many policies and procedures being designed to make the real estate industry a success in the coming days. The affordable housing scheme of the Modi government, to be fulfilled by 2022 has evoked an overwhelming response from the public. Apart from that, the government has announced India will have 100 smart cities within a particular timeframe. Furthermore, 2500 villages will become smart by the end of 2019. The Union Cabinet has ratified the real estate bill and it is taking some keen positive measures to provide Single Window Clearance for real estate projects. The Ministry of Housing and Urban Poverty Alleviation has clearly stated that there will get introduced new financing options for those developers involved in the government’s Home for All scheme.

Despite the developments in real estate market across the country with the support of the government, there seems to be a lot of laxity in the business. The government should actually look into the options of easing the difficulties of common man by introducing new incentive schemes in future. Such measures will definitely instil a lot of confidence in the minds of people.

There are some wishes of common man, in these lines, discussed in this article underneath:

Higher tax benefit on housing loan:

In cities such as Mumbai or Delhi, a house on an average would cost anywhere between Rs.80lac and 1 crore. Under the income tax act, 1961, the current tax deduction for payment of interest is Rs.2 lakhs. But, this may not connect well to the high interest cost which is 10% to 12% per annum. This limit of Rs.2 lakhs should either be increased or a new higher amount ought to be announced to help salaried individuals across the country.

Increase in timeline for under construction property:

This is one very important aspect that the government has to look into.

Exemption under section 54 of the ITA to an individual, for capital gains earned on sale of house property can only be availed if the new house is invested on in just 1 year before the transfer or purchased 2 years after transfer. For constructed / under construction properties, the timeline for re-investment is 3 years. Very often people come across projects that get delayed a bit, due to some genuine reasons. This has an impact on the interest amount by getting it reduced to Rs.30,000 from Rs.2 lakhs.

Normally, a home buyer starts paying interest soon after taking loan from any bank but, tax deduction had its effect only after the property is constructed. Due to this, buyers get penalized to a great extent. So, the authority should make sure that the buyers are able to claim deductions immediately after the payments are started.

Higher tax deduction for repayment of loan:

As per an amendment in section 80C of the ITA in 2014, the limit for deduction of principal towards a house property loan was increased from Rs. 1 lakh to Rs. 1.5 lakhs.

The government should increase the deduction amount in order for the people to benefit. To provide this benefit separately to the payers is definitely a better option than to have it combined with mutual funds or PPF etc.

Exemption from TDS on purchase of immovable property in case of reinvestment: At the time of purchasing a property, the purchaser has to pay TDS which is Tax Deducted at Source to the government. Due to that, the seller may fall short of cash available to reinvest on a new property.

In case of reinvestment, the government could exercise some support by providing a specific exemption.

Indirect tax cost / Implementation of GST: Currently, the quantum of indirect taxes (VAT and service tax) and stamp duty given by developers to home owners is more than 10% of the value of a property. It is often noticed that there is a mismatch of VAT and service tax on the construction cost of the property. Further, the facility of cross utilization of credit is not available on VAT and service tax payable by Builders when they construct properties and while purchasing raw materials from suppliers. Overlapping of taxes will undoubtedly make a property costlier than before and the same continues to happen.

GST has proposals to combine several taxes including VAT and Service tax into one single structure so that, there will be an uninterrupted flow of credit throughout the supply chain. This will definitely reduce the cost of indirect tax. The government should actually speed up the process the make sure that such measures are taken fast, to develop confidence in the minds of public.

The government should also support those developers that are willing to be a part of the green building construction programs and grant them some special privileges. A hard push from the government is absolutely required to get this done successfully. Such methods will definitely persuade people to develop a lot of confidence in builders.

By taking the above discussed points into consideration, if the government is able to fulfill the requirement of the people to a significant extent then, people’s dream of getting a low-cost house will come true in reality.