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Budget 2014: Four tax-relief measures that home-buyers need

Jul 2, 2014, 10.27AM IST
(People have high expectations…)

By: Neeraj Bansal

The real estate sector caters to one of the three necessities of life - housing. Every Indian aspires to buy a house and provide shelter to his family. However, this is easier said than done due to several constraints, such as high prices and interest cost and multiplicity of tax. A slump in the economy and the ensuing uncertainties around disposable income growth, besides the above factors, have also contributed negatively and resulted in discouraging several people from buying a house.

People have high expectations from the new government at the Centre and they are hoping for positive measures critical for the growth of the sector. The government could perhaps consider the following recommendations:

1. Extend the Additional Deduction on Home Loans Below Rs 25 lakh: The government had earlier announced an additional income tax deduction of Rs 1 lakh to home buyers who seek a home loan of up to Rs 25 lakh for the first purchase. This deduction was applicable till 31 March 2014 and was a welcome step, as it improved the purchase price/disposable income and affordability index of buyers. The new government is expected to extend the deduction for some more period considering the existing shortage in affordable housing. Further, the Rs 25 lakh limit should also be increased for buyers in metros and its suburbs.

2. TDS on title transfers should be on property worth Rs 1 cr and above: The government had mandated 1 per cent tax deduction at source (TDS) on the transfer of immovable property worth Rs 50 lakh or more. While the intent of the government is appreciable, the current liquidity crunch and administrative burden that this requirement casts on buyers demands for alternative approaches, such as the strengthening of existing requirements on the transfer of immovable property (for example, effectively enforcing registrations and no registration without PAN/Adhaar), may be considered. The government would do well to revoke this requirement completely or, considering the rise in real estate prices, increase the threshold limits to Rs 1 crore or define different thresholds for metros and non-metros.

3. Clarification on property valuation for the calculating stamp duty: Deeming provisions of taxes collected on the transfer of property based on stamp duty valuation results in notional income tax - be it transferring of capital or a business asset. The state government determines stamp duty valuations for a different purpose. It does not necessarily reflect the actual market value, which is a result of several factors such as distress sale, condition of a property, quality of construction, floor rising and proximity to schools, markets or hospitals. Therefore, both provisions - i.e. Section 43CA and Section 50C - should be revoked.

  4. Increasing the threshold limit for the deduction of home loan interest - currently at Rs 1, 50,000 - would be another much-needed relaxation. The subject interest limit has remained unchanged for more than 10 years. Considering the rise in inflation over the years and the consequential increase in home prices, loan amounts and the interest thereon, the new government should consider increasing the interest deductibility threshold to Rs 500, 000. This would not only provide relief to buyers but also be an added fillip to the sector.

Though, the list of expectations from the new government is long, the above points represent the areas that demand attention on an urgent basis.

The author is a Partner at KPMG in India.