The Union budget 2016 is knocking on the door and Indian realty sector stands with a heart full of expectations to welcome it. The sector still has a lot of lacunae to be addressed and hence there is a long list of expectations to be met. Some of the key expectations that the realty sector has are:
Incentivize end-users instead of investors
The biggest hindrance to this project is the availability of funds for the buyers. There has to be some luring element to attract buyers and convert the fence sitters. Currently, it is the second time buyers who get maximum tax benefits.
Current tax benefits for second-home buyers
1) Under Section 24, there is full tax benefit on the interest payable.
2) Second homes are usually put on rent by the owners. Rent coming from a property is an income but, you can also make it as a tool for your tax deductions (HRA).
3) The rental yield is 1-2 per cent, whereas the interest component is 95% of the loan amount, due to this there is always a resultant loss under Income from House Property. This aids in reducing the taxable income.
Current tax benefits for self-occupied property
1) Under Section 24, the maximum tax deduction on interest component is up to Rs 2 lakh if the house is acquired within three years of taking the loan.
2) Under Section 80EE, for first time buyers additional deduction of Rs 1 lakh is available if the loan amount doesn't exceed Rs 25 lakh. The value of the residential house property should not exceed Rs 40 lakh.
Evidently, the tax benefits are skewed in favour of second time home buyers, so additional benefits are required for self-occupied property owners (first time property buyers). The existing section 80EE has constraints and aims mainly towards affordable housing. It is eligible for residential housing only up to Rs 40 lakh. In metro cities like MMR, NCR and Bangalore, this is of little relevance. From the below graph based on December 2015 quarter data, we can decipher that in metro cities (except Ahmedabad), the average composition of projects less than equal to Rs 40 lakh is only about 33 per cent. Ahmedabad being a largely end-user market is the only exception with 65 per cent.
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