First home buyers get Rs 50,000 more deduction on interest

Aiming to boost demand in realty sector, the government today proposed an additional Rs 50,000 deduction on interest on loans for first home buyers and tax incentives on development of affordable housing, besides exempting REITs from dividend distribution tax.
The government also exempted from service tax construction of affordable houses up to 60 sq metres under any scheme of the central or state government including PPP schemes.
Real estate sector, particularly housing segment is facing a huge slowdown for the last 2-3 years, resulting in a huge delay in delivery of projects to customers and piling up of unsold inventories.

Listing promotion of affordable housing as as one of the thrust area, Finance Minister Arun Jaitley in his budget speech said: "For the 'first-home buyers' I propose to give deduction for additional interest of Rs 50,000 per annum for loans up to Rs 35 lakh sanctioned during the next financial year, provided the value of the house does not exceed Rs 50 lakh".
At present, Rs 2,00,000 deduction is allowed for interest paid on home loans.
In a relief to individual tax payers, Jaitley also increased the tax deduction limit to Rs 60,000 per annum from the current Rs 24,000 on housing rent.

To boost supply of affordable homes, he proposed 100 per cent deduction for profits to an undertaking from a housing project for flats up to 30 sq metres in four metros and 60 sq metres in other cities.

The deduction would be applicable on the projects approved during June 2016 to March 2019, and completed within three years of the approval. Minimum Alternate Tax (MAT) will, however, apply to these undertakings.
"Pradhan Mantri Awas Yojna embodies the assurance of the Government to address the housing needs of all and more specifically the poor, in a time bound manner. Construction of houses creates considerable employment opportunities as well," he observed.

"Another proposal to stimulate housing activity is to facilitate investments in Real Estate Investment Trusts (REITs). I propose that any distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax," Jaitley said.
In September 2014, market regulator SEBI had notified norms for listing of REITs that would help attract more funds in a transparent manner into the real estate sector.
REITs, which can be listed on stock exchanges, would help channelise both domestic and overseas investments into commercial real estate projects.
Jaitley further exempted service tax on construction of affordable houses up to 60 sq metres under any scheme of the central or state Government including PPP Schemes.

In a relief to individual tax payers, Jaitley increased
the tax deduction limit to Rs 60,000 per annum from the current Rs 24,000 on the housing rent.
"The people who do not have any house of their own and also do not get any house rent allowance from any employer today get a deduction of Rs 24,000 per annum from their income to compensate them for the rent they pay.
"I propose to increase the limit of deduction in respect of rent paid under section 80GG from Rs 24,000 per annum to Rs 60,000 per annum, which should provide relief to those who live in rented houses," Jaitley said.

Jaitley said deduction of interest payable on capital borrowed for acquisition or construction of a self-occupied house property would be allowed if such acquisition or construction is completed within five years.
"It is proposed to provide that standard deduction of 30 per cent shall be allowed against the amount received on account of unrealised rent while computing the house property income," he added.
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"Any developer who builds houses below 30 sqm in Tier I and below 60 sqm in Tier II, they are exempt for paying tax from the profit. It will prompt a lot of developers to go in there," Jones Lang LaSalle Chairman and Country Head Anuj Puri said.

He also said the scheme has to be such that the developers are not building these 30 sq mt units and then combining all.
Hiranandani Group Co-founder and Managing Director Niranjan Hiranandani said: "Defining of affordable housing at 30 sqm in the metropolitan cities, is too small to be conceived. In the rest of the country its 60 sqm which appears to be fair and correct."
However, he pointed out that 30 sqm for metro like Mumbai can't be too small as affordable size is the livable size and hence the size of affordable housing should be 60 sqmt across the country.

CREDAI National President Getamber Anand said initiatives of encouraging PPP and housing for all by 100 per cent income tax exemption on such houses besides the MAT 30 sqm in metros and 60 sqmt in non-metros will encourage the private sector to reach these areas that accommodate about 90 per cent of the shortage.
"The 100 per cent exemption will actually increase the IRRs on such ventures," he added.
Cushman & Wakefield Managing Director- India Sanjay Dutt welcomed the move but said the limit of Rs 50 lakhs as house value is on the lower side in most metros and could have been increased by the government.

"The Budget has placed greater thrust on affordable housing and has brought about a much-needed cheer for the real estate sector. The deduction of Rs 50,000 crore is a welcome move but the limit of Rs 50 lakhs as house value is on the lower side in most metros and could have been increased," he said.
In a relief to individual tax payers, Jaitley increased the tax deduction limit to Rs 60,000 per annum from the current Rs 24,000 on the housing rent.
"Rental housing has been provided an impetus with an increase in the House Rent Allowance (HRA) deductions. Those not receiving any HRA can now avail a standard deduction of Rs 24,000; while for those availing it, the limit has been raised to Rs 60,000 per annum for rented accommodation," CBRE South Asia Chairman and Managing Director Anshuman Magazine said.

Centrum Capital Head - Real Estate Group Ajay Jain said, "the increase in limit of house rent deduction from Rs 24,000 to Rs 60,000 will certainly benefit tax payers who fall in this category and will leave more disposable income in hands of tax payers."
Wadhwa Group Managing Director Navin Makhija said, "the budget's direction is positive with several macro factors making way for a better economic regime. However, few more amendments in the residential housing sector would have worked out better for the sector. But we hope there is a strong reinforcement in the real estate industry this year.