Budget 2018: Over the years, the need for housing especially in tier I and tier II cities has increased on account of various reasons such as increasing trend of nuclear families, migration of people from rural area to urban area, aspiration to own a house rather than rent, etc. Over a period of time, the cost of housing in these cities have increased significantly. Non-availability of loan at cheap rate of interest and the capacity of buyer to service the loan is deterring the decisions of many home buyers. Though the interest on home loans has been reduced by around 200 basis points over the last three years, it is not enough. Some more tax incentives to individual home buyers need to be given by Finance Minister Arun Jaitley in the upcoming Union Budget to make housing affordable.
Interestingly, it is also the vision of the Modi government to provide ‘Housing for All by 2022’. Is this vision of the Modi government likely to get a boost by way of tax sops in the Budget 2018?
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Currently interest on loan taken for the purpose of acquiring or constructing a first home is allowed as deduction of up to Rs 2 lakh. Pre-construction interest (which is allowed as deduction in five equal installments from the end of financial year in which construction is completed) is also included in the overall limit of Rs 2 lakh. The limit of interest was last increased in the financial year 2014-15 from Rs 1.5 lakh to Rs 2 lakh. However, this has not benefited much to the home buyers because the increase in property prices now means that home-buyers have to opt for a higher loan amount. In cities like Mumbai, even a two bedroom apartment in distant suburbs costs over Rs 75 lakh. Even if 75% of the property price is taken as a loan, simple interest works out to Rs 4,80,000 at 8% rate of interest. Thus, as seen over many cases, tax payers are not able to absorb the full interest cost.
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Considering this, the limit of Rs 2 lakh needs to be increased to Rs 4 lakh. Similarly, additional deduction of Rs 50,000 under section 80EE available to first time home buyers whose housing loan was sanctioned during 1 April, 2016 to 31 March, 2017 should also be extended beyond 31 March 2017.
Apart from interest deduction, presently principal repayment of housing loan is allowed as deduction under section 80C with an overall limit of Rs 1.5 lakh with other eligible investments. This limit was also increased from Rs 1 lakh to Rs 1.50 lakh from the financial year 2014-15. Separate deduction for such repayment should be given and not clubbed with other deductions.
It will be interesting to wait and watch, with expectant eyes, whether the Budget 2018, to be pronounced on 01st February, 2018, will bring a smile on the faces of home buyers and fulfil the government vision of Housing for All.
(By Ashok Shah, Partner, N. A. Shah Associates LLP and Milin Bakhai- Deputy Manager Tax, N. A. Shah Associates LLP)
