The National Real Estate Development Council (Naredco) – an apex body formed under the aegis of the Ministry of Housing and Urban Affairs, Government of India, has presented its recommendations for upcoming Union Budget 2023-2024.
The body has suggested that the real estate industry could become more productive, as well as thrive, if certain regulations and taxation blocks are eliminated, particularly those concerning the interest on home loan and the tax load on developers working on affordable and rental housing projects.
The body has also recommended amending or removing certain sections of the Income-tax Act, 1961 and incentivising business entities and individual investors looking to invest in the sector.
“The year 2022 ended on a good note, with a rise in sales of residential properties in the Mumbai Metropolitan Region (MMR) and the Delhi National Capital Region (NCR). Commercial leasing also experienced a revival. To keep the momentum going, measures need to be taken to bolster confidence in the industry,” says Rajan Bandelkar, president, Naredco.
Home Loan Interest Deduction Limit
The rising interest rate will make it difficult for homebuyers, going forward. As such, the government should look at increasing the deduction limit on home loan interest, Naredco said.
“The deduction available for home loans under Section 24 (b) should be expanded from Rs. 2 lakh to Rs. 5 lakh. Such an incentive will stimulate demand and lessen the housing deficiency in the nation,” says Bandelkar.
Atul Monga, founder and CEO BASIC Home Loan, also echoed similar views. He said that rising interest rates can have a major impact on the home loan and real estate sectors, making affordability a major concern for buyers.
“The government needs to take steps such as hiking the tax rebate on housing loan interest under Section 24 (b) to Rs 5 lakh,” he says.
“To foster growth in the sector, lenders need to offer competitive loan products with sensible pricing and attractive repayment terms. This can help the sector stay competitive and provide budget certainty to the customers,” he adds.
Tax Sops For Builders
The apex industry body has also urged the government to remove Section 23(5) of the Income-tax Act, 1961.
“Developers should be exempted from the burden of tax on notional rental income under Section 23(5). The idea of notional rent levied on development companies from the properties held as stock in trade opposes the idea of the promotion of rental housing in India,” Bandelkar adds.
In addition, Naredco has proposed that the guidelines related to the profitability of budget-friendly housing projects under Section 80IBA of the Income-tax Act, 1961. Also, the advancement of rental housing in India should be viewed from a more realistic standpoint, it said. Section 80IBA allows a deduction equal to 100 per cent of profits and gains derived from the affordable housing project.
Parveen Jain, chairman, Naredco said that meeting the necessary criteria outlined in Section 80IBA is difficult in most urban areas. Therefore, this section should be updated to accommodate the evolving needs of the industry. As an example, constructing a project in Mumbai or Delhi where the properties cost less than Rs 45 lakh is difficult, he said.
“The current price band of Rs 45 lakh for a property to be considered under affordable housing is not appropriate in most of the cities in India, it should be increased to Rs 75 lakh or more,” Monga says.
Additionally, it is not realistic for firms to consume 80-90 per cent of floor area ratio (FAR) when taking on a large-scale project, Jain added.