Budget 2019-20 Offers Major Deduction on Home Loan Interest Payment

With dreams and plans of buying their first home this year, Soham and Tithi had their eyes and ears peeled for the budget announcement. Good for them, they weren’t disappointed!

Like Soham and Tithi, homebuyers spend nights and days weighing the financial security of owning homes with a thorough consideration of home loans and monthly installments that will go towards paying off the home loan. In this regard, the Union Budget 2019-20 holds much significance for them.

The Interim Budget and Some Policy Changes

The 2019 interim budget that was rolled out prior to the general elections had much in store for the housing sector. Some of the important directives and proposals were:

• Proposal to increase tax deduction on rent from Rs 1.8 lakh to Rs 2.4 lakh
• Reduced GST implemented on under-construction properties from 12% to 1% for affordable homes (valued up to Rs 45 lakh) 18% to 5% for homes costlier than Rs 45 lakh.
• Lowering of home loan interest rates and changing income tax slabs to allow more rebate to the middle-income group in availing housing finance
• Introduction of a number of housing and related reform schemes by the Government.

Of course, a lot of concerns of the homebuyers and the real estate sector still remained, prominent among them being the stalled projects and delayed possession of houses, capitalisation issues related to NBFCs and HFCs, and certain taxation issues.

Budget 2019-20 Offers Major Deduction on Home Loan Interest Payment

The full year’s Union Budget 2019-20 was quite reassuring for the homebuyers, particularly those interested in affordable housing, and the real estate sector, especially developers. According to experts, this budget will provide a boost for housing demand and will consequently help developers as well. Let’s take a look at some of the key highlights:

• Deduction of an additional Rs 1.5 lakh on home loan interest payment till March 31, 2020, for buying affordable houses of value up to Rs 45 lakh. In addition to the current amount of Rs 2 lakh home loan interest payment which is eligible for the deduction, Rs 3.5 lakh will be eligible going forward.
  In addition to the interest subsidy benefits under Pradhan Mantri Awas Yojana, this additional benefit is quite substantial for homebuyers to consider buying a home now.
• Recapitalisation of PSU banks to the tune of Rs 70,000 crore and securing NBFC assets will restart developer credit flow.
• Govt to provide credit guarantee to PSBs to buy NBFC assets.
• As per Sec-24 of the Income Tax, homebuyers can claim up to Rs 2 lakh deduction on home loan interest repayment on self-occupied homes.
• Legacy Dispute Resolution Scheme will provide relief to litigators under the Central Excise, Service tax and Cesses from payment of interest and penalty.
• Rental housing returns can improve with the new Model Tenancy Act. This act can improve investment on real estate for rental income by deleting archaic provisions of current laws.
• Infrastructure development push will align with housing demand and indirectly boost demand for industrial and commercial real estate assets.
• Reserve Bank of India will act as the new regulator for the housing finance industry.

Given these highlights, homebuyers have had much to rejoice. In fact, additional deductions on home loan rates mean that homebuyers can save almost Rs 7 lakh on a 15 year home loan policy for houses valued up to Rs 45 lakhs. Besides, housing sector will see much liquidity in Tier II and Tier III cities along with the rural areas.

Focus on Affordable Housing up to Rs 45 Lakh

Many industry experts believe that, the Union Budget focused more on affordable housing of apartment prices not more than Rs 45 lakh and that the budget ignored the segment other than the low and middle-income group.  The current budget, in continuation to the previous interim one, stayed true on the alignment of the definition of affordable housing with GST as well.

The extension of tax rebate under section 80-IBA of the Income Tax Act, 1961 to March 31, 2020, is a tremendous boost for first-time homebuyers. Going forward, the government may also be poised to consider the permissions to own land for housing development. This Public Private Partnerships (PPP) proposal could further provide impetus to affordable housing.

The realisation of ‘Housing for All’ goal and affordable housing through Pradhan Mantri Awas Yojana (PMAY) has been a major area of impetus in the budget. The LIG and MIG housing sector can finally, look towards overcoming the housing deficit. The government proposal has extended the construction of a whopping 1.95 crore units under PMAY Grameen sector i.e. the rural areas.

Homebuyers in Telangana should be delighted as the concept has gained traction with developers in Hyderabad launching affordable housing projects. Besides, West Bengal has received approvals for 1.02 lakh housing units under the PMAY (Urban) scheme. Homebuyers in the state should definitely rejoice as the interest subsidy scheme will benefit first time urban homebuyers with annual income between ₹6 lakh and ₹18 lakh.

Some Untouched Hopes

As always, there will be hits and misses and likewise, the Union Budget 2019-20 left certain real estate dreams unrealized. A major dejection for the real estate sector was not getting the industry status for the whole sector opening up the scope of cheaper bank finance. Only the affordable housing segment was accorded the industry status.

According to developers, an industry status would have helped them cut costs and pass on the benefits to homebuyers. Section 80EE also required some amount of attention but this was another area which was left without any new policy directive.

Homebuyers were holding on to a lot of their expectations and hoping that the Union Budget 2019-20 will address some of their concerns, allay some of their fears and fulfill some of their hopes. While some sops have given reasons for cheer, especially to the first time homebuyers, a lot of other especially lower home loan rates and transparent and quick transmission of interest rate changes are still unrealized. All in all, for people like Soham and Tithi, it’s a great time to go ahead and buy their dream home!