Giving a thrust to affordable homes, the government today proposed full tax rebate on developing such projects under a notified scheme and raised the ceiling of 1% interest subsidy on home loans up to Rs 15 lakh from the current Rs 10 lakh.
In the Budget for 2011-12, Finance Minister Pranab Mukherjee proposed 100% tax deductions on capital expenditure to develop affordable houses under government scheme, thus promoting builders to focus more on such homes.
"Considering the importance of housing, I propose investment linked deduction to businesses, which develop affordable housing under a notified scheme," he said.
Currently under the section 35AD of the Income Tax Act, a housing project for slum re-development and rehabilitation is incentivised with 100% tax exemption.
The incentives are extended to "developing and building a housing project under a scheme for affordable housing framed by the central government or a state government, as the case may be, and notified by the board in this behalf in accordance with the guidelines as may be prescribed".
This was stated in the budgetary document.
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Mukherjee also raised the limit for 1% interest subsidy on home loans to up to Rs 15 lakh from the current level of Rs 10 lakh, a move that could encourage buyers of low cost houses. He also increased the value of houses eligible for availing such subsidy by Rs 5 lakh to Rs 25 lakh.
"To further stimulate growth in housing sector, I am liberalising the existing scheme of interest subvention of one% on housing loans by extending it to housing loan up to Rs 15 lakh, where the cost of the house does not exceed Rs 25 lakh from the present limit of Rs 10 lakh and Rs 20 lakh respectively," he said.
The government also enhanced the existing housing loan limit to Rs 25 lakh from Rs 20 lakh under priority sector lending on account of increase in prices of residential properties in urban areas, he added.
On the development of homes for poor, Mukherjee said: "Credit enablement of economically weaker sections (EWS) and LIG (low income group) households is a serious challenge. To address this issue, I propose to create a Mortgage Risk Guarantee Fund under Rajiv Awas Yojana.
"This would guarantee housing loans taken by EWS and LIG households and enhance their credit worthiness."
Mukherjee also announced enhancing the provision under Rural Housing Fund to Rs 3,000 crore from the existing Rs 2,000 crore to provide housing finance in rural areas at competitive rates.
Welcoming the moves, analyst and real estate developers said these proposals are likely to encourage builders to give more emphasis to projects costing up to Rs 25 lakh.