The government yesterday raised the income tax exemption limit on interest paid on housing loans to Rs 1 lakh from Rs 75,000.
The move was aimed at giving a renewed push to the booming housing sector that helped revive steel and cement sectors during 1999-2000.
Moving amendments to the Finance Bill 2000-2001, finance minister Yashwant Sinha said, "To further promote housing activity, I propose to raise the limit of deduction of interest payable in acquiring self-occupied properties from Rs 75,000 to Rs 1 lakh."
Also Read
With the move, the government has, in the span of only about three years, increased the exemption limit on interest paid on housing loans by more than six times _- from Rs 15,000 in 1997 to the current Rs 1 lakh.
The Finance Bill 1999-2000 had raised the exemption limit from Rs 30,000 to Rs 75,000, which was retained in the original Finance Bill 2000-2001 presented in Parliament on February 29. According to the Bill, the
housing loan must be availed of between April 1, 1999 and March 2001.
Reacting to the amendment to raise the tax limit further to Rs 1 lakh, National Housing Bank chairman P P Vora said, "It will have a tremendous impact on the housing sector. It basically gives the signal that the government is committed to lifting the economy to a higher growth level, and the housing sector will be the engine of that growth. The housing finance sector will get a boost. More importantly, the new fiscal incentives would make housing more affordable to people in the highest tax bracket."
The fiscal incentives for housing announced in the Finance Bill 1999-2000 had resulted in increased housing activity.
This spurred the multiplier effect in the cement and steel industry, which grew by 22 per cent and 8 per cent, respectively, in 1999-2000. The housing finance companies recorded an average growth rate of 30 per cent during the year.
Cement and steel are the basic building materials used in construction. It is estimated that when Rs 1 lakh is spent on a house, 18 per cent of the amount is spent on consumption of cement, approximately 10 per cent on steel and another 27 per cent on direct labour.
It is also estimated that if around 1,00,000 incremental houses are constructed in one year, each costing about Rs 1.75 lakh, it would result in a requirement of one cement plant with a capacity of 10 lakh tonne.
It would also require an additional 90,000 tonne of steel besides one year's full direct employment to 140,000 people.
In addition, there will be an increase in employment in other related sectors such as consumer items.