With banks biting into their business, housing finance companies (HFCs) have started to clamour for a level playing field.
This is because, while banks and financial institutions are allowed tax exemptions against provision for non-performing assets (NPAs), HFCs are not.
Keki Mistry, managing director of sector leader Housing Development Finance Company (HDFC), said: "We are allowed a deduction only if the asset is written off and not at the time of making a provision in the account. This ought to be corrected in order to provide a level-playing field."
The housing finance industry anticipates the stress on the housing sector to continue in the forthcoming budget, especially as housing is the second largest employment generator in the economy. While there are tax breaks for an individual buying a house, there are a number of anomalies facing HFCs, which need to be corrected, pointed out major players.
Section 80 I B of the Income Tax Act, which allows a project to qualify as an infrastructure project, states that the project should have commenced after October 1, 1998, and be completed by March 31, 2003. This is a period of four-and-a-half years. The objective of classifying a project as an infrastructure project is to enable the project to procure funding at a slightly lower interest rate. However, there is a clear anomaly considering Section 10 (23) (G) of the I-T Act that allows for tax exemption on infrastructure projects only when the income from financing an infrastructure project is for a minimum period of five years.
Even as the housing finance sector has seen a growth in sanctions and disbursements this fiscal, Mistry states that more are to be done to encourage people to buy houses in order to alleviate the massive shortage of 19.4 million houses in the country.
According to analyst reports, every rupee invested in housing adds 78 paise to the GDP. Further, over 269 industries are directly or indirectly dependent on the housing sector. Any boost to the housing sector, will automatically give a boost to the other core sectors of the economy.
Said a leading HFC official: "The government needs to create a mechanism whereby funds ought not to go out of the housing sector. One such possibility could be to allow the proceeds from the sale of a house to be invested in HFCs."
Many players are of the view that long-term bonds/deposits of HFCs should qualify as eligible investments under Section 54EC for exemption of capital gains tax. At present, when an owner sells his property, he has the option to either invest the same funds into another property or else to benefit from tax exemption, opt to invest the amount in capital gains bond. As the Reserve Bank of India (RBI) is highly conservative in its outlook and there have been a number of cases of defrauding investors, for the sake of safety, investment could be restricted to 'AAA' rated deposits or instruments, said analysts.
Further, individual house owners should also be given the provision of writing off the cost of their homes over a period of time -- 10 years and more -- as is the case with non-individuals (read corporate sector). This will provide the much-needed impetus to the housing sector which in turn, will provide a boost to the entire economy, stated an analyst report.
