[ecis2016.org] With the extension of the safe harbour limit, home buyers purchasing a property below the circle rate by up to 20%, will not have to pay additional tax
While India’s real estate sector did not get the special treatment it expected from the Union Budget 2021-22, some relief did come its way, in the form of an extension of the safe harbour limit on property transactions.
“In order to incentivise home buyers and real estate developers, it is proposed to increase the safe harbour limit from 10% to 20%, for the specified primary sale of residential units,” finance minister Nirmala Sitharaman said, in her Budget Speech. For tax purposes, safe harbour refers to a situation where authorities would be willing to accept the transfer price as the applied price declared by the tax payer.
What if circle rate is more than market value?
This means that home buyers who purchase properties with values below the circle rate by up to 20%, will not have to pay additional tax. Similarly, developers selling units below the circle rate by up to 20% will not have to pay additional tax. This benefit will be applicable from the assessment year 2021-22.
For the uninitiated, circle rate is the state government-defined standard rate for land and other properties across the city, below which a transaction cannot be registered, under general circumstances.
For various reasons, there may be instances where properties are sold below the circle rates. However, tax and stamp duty computation for such transactions is done on the basis of the circle rate. The difference between the transaction value and circle rate is taken as ‘income’ in the hands of the purchaser, as well as the seller.
Amid an over five-year long slowdown, the government decided to offer some support to buyers and sellers in Union Budget 2020 and decided that no additional tax liability will arise in transactions where the differential between the property’s market value and circle rate is lower than 10%. While offering some cushion to the real estate sector in the aftermath of the coronavirus crisis, the government in November 2020 decided to increase the differential rate between the circle rate and the agreement value from 10% to 20%, to be applicable till June 30, 2021, for only primary sale of residential units of value up to Rs 2 crores. The Budget proposal now extends this time limit to June 30, 2022.
[ecis2016.org] All you need to know about circle rate
However, note that the relief will only be available on properties valued up to Rs 2 crores. Also, this benefit will apply, only if you are purchasing a property directly from the primary market, i.e., from a developer. This relief will not be applicable on the purchase of resale properties.
How will this help builders deal with unsold inventory?
Amid the Coronavirus pandemic, the unsold housing stock in India’s eight prime residential markets stood at over 7.18 lakh units, as on December 31, 2020, show PropTiger.com data. Interestingly, 48% of this stock is from the affordable category (units priced up to Rs 45 lakhs).
In a clear indication that the appetite for housing might not be as huge as it used to be in the pre-COVID-19 days, the average inventory overhang has also increased to 47 months as of December 2020, as compared to 27 months in December 2019.
For the uninitiated, inventory overhang is the time builders would take to sell off the existing stock at the current sales velocity.
Unsold stock: City-wise break-up
|City||Unsold stock on December 31, 2020||Inventory overhang (in months)
Source: Real Insight: Q4 2020
The government’s move, to extend the safe harbour limit, could be instrumental in helping developers to dispose of some of their inventory burden, considering that most units also fall in the affordable category, which stands to benefit from another announcement in Budget 2021.
The Budget proposed to extend the benefits of Section 80EEA for another year. Launched in the 2019 Budget, Section 80EEA helps first-time home buyers to save an additional Rs 1.50 lakhs per year against the home loan interest payments, over and above the Rs 2-lakh deduction limit allowed under Section 24 (b), for the purchase of housing units worth up to Rs 45 lakhs. This means, buyers of affordable homes can claim deductions of up to Rs 3.50 lakhs every year, towards the interest payment on home loans.
Budget 2021: Government extends affordable housing tax holiday, deductions under Section 80EEA for another year
Finance minister Nirmala Sitharaman has proposed to extend the benefits of Section 80EEA and the tax holiday for developers of affordable housing projects, till March 31, 2022, in her Budget for 2021-22
February 1, 2021: In a move that indicates that the government plans to continue to support the country’s affordable housing segment by incentivising first-time home buyers, finance minister (FM) Nirmala Sitharaman proposed to extend the benefits of Section 80EEA for another year. The announcement comes at a time when the government is fast approaching the deadline to meet its housing-for-all-by-2022-mission target.
Presenting the Budget for fiscal 2021-2022, the FM said the additional benefit under the section, provided on payment of the interest component of home loans, will be extended till March 31, 2022. In last year’s Budget the FM had extended that timeline for one year to March 31, 2021.
Launched in the 2019 Budget, Section 80EEA helps first-time home buyers to save an additional Rs 1.50 lakhs per year against the home loan interest payments, over and above the Rs 2-lakh deduction limit allowed under Section 24 (b), for purchase of housing units worth up to Rs 45 lakhs. This way, such a buyer is able to claim deductions of up to Rs 3.50 lakh every year towards interest payment of his home loan, provided he meets a bunch of terms and conditions while applying for the home loan.
“In the July 2019 Budget, I provided an additional deduction of interest, amounting to Rs 1.5 lakhs, for loan taken to purchase an affordable house. I propose to extend the eligibility of this deduction by one more year, to March 31, 2022. The additional deduction of Rs 1.5 lakhs shall, therefore, be available for loans taken up till March 31, 2022, for the purchase of an affordable house,” Sitharaman said during her two-hour long Budget 2021 speech.
The move is part of the government’s plan to shore-up Asia’s third-largest economy, which is currently reeling from the severe dent caused by the Novel Coronavirus pandemic and to boost India’s housing sector, the second-largest employment generating sector in the country, after agriculture.
“Affordable housing is set to get a boost from the extension of tax holiday and Section 80EEA till March 31, 2022. Looking at the experience of people in last one year, affordable housing will get more buyers as people want to secure their lives by owning a home… The demand for affordable housing is at an all-time high and we will focus on fulfilling it… we will keep contributing to the housing for all mission.,” said Pradeep Aggarwal, founder & chairman, Signature Global, and chairman, National Council on Affordable Housing, Assocham.
Tax holiday for affordable housing projects
Extending the relief to India’s slump-hit and liquidity-starved real estate developers, the Budget 2021 also extended the tax holiday, provided under Section 80IBA, on affordable housing projects for one more year. So far, affordable housing projects could avail of the tax exemption benefit till March 31, 2021. Following the extension, they will be able to claim the benefit till March 31, 2022.
Under the scheme, which was also launched in the Budget 2016, developers can claim 100% tax deduction on profits from affordable housing projects. However, builders can claim the benefit only if they meet the norms pertaining to the carpet area, completion timeline, etc.
According to Kaushal Agarwal, chairman, The Guardians Real Estate Advisory, the government’s decision to extend the tax holiday for affordable housing projects by another year, is a step in the right direction to realise the PM’s housing-for-all-by-2022 dream.
[ecis2016.org] Budget 2021: FM gives a boost to infrastructure development
According to property brokerage firm JLL India, the extension would ensure continued interest from developers towards affordable housing projects and help the government achieve its housing-for-all-by-2020 mission. “Nearly one third of the newly launched projects across India’s top seven markets catered to the affordable housing segment in 2020, and this proportion was only expected to increase,” the brokerage firm said.
Data available with ecis2016.org show a total of 122,426 were launched in the entire 12-month period in 2020, only half the new supply that filled the market in 2019 (244,256 units). This announcement might result in a spike in supply numbers in 2021.
As it is, supply numbers for the October-December period of 2020 showed affordable housing accounted for nearly 48 per cent new launches in India’s eight prime residential markets.
“The proposal to extend the Rs 1.5 lakh benefit on interest paid on affordable housing loans by one year to March 31, 2022, is an exceptional move which will boost the affordable housing segment and help to achieve the Prime Minister’s vision of housing for all. It will also ensure that more and more homebuyers get to avail this benefit,” said Ashok Mohanani, president, NAREDCO-Maharashtra. The reduction in tax burden on senior citizens above 75 years will give a push to the senior-living projects, he added.
In her Budget speech, Sitharaman announced that in order to ease compliance burden on senior citizen pensioners, who are of 75 years of age or above, the requirement of filing of income tax if the full amount of tax payable has been deducted by the paying bank is being done away with. This exemption is proposed to be made available to such senior citizens who have only interest income apart from the pension income.
“These measures will help the affordable housing segment create demand from home buyers, while increasing supply of such projects from developers. It will be a win-win for all the stakeholders including home buyers, developers and the government will also be able achieve the objective of Housing for All,” says Niranjan Hiranandani, national president of industry body NAREDCO.
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[ecis2016.org] Budget 2021: Industry welcomes expansionary budget, hails pragmatic approach
Boost to rental housing
In order to incentivise rental housing, the Budget 2021 also proposes to allow tax exemption for notified affordable rental housing projects.
A new sub-section has been added in Section 80-IBA to effectuate this change. Under sub-section 1A would read: “Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building rental housing project, there shall be allowed a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.”
Sub-section (6) after clause (d) also defines “rental housing project” as a “project which is notified by the Central government in the official gazette under this clause on or before the 31st day of March, 2022, and fulfils such conditions as may be specified in the said notification”.
“We are committed to promote the supply of affordable rental housing for migrant workers. For this, I propose to allow tax exemption for notified affordable rental housing projects,” the FM said.
“The real estate industry is at the cusp of transition in the country and the twin announcement by the FM on rental housing and affordable housing will provide a lot of support to the sector at this juncture,” said Yash Miglani, MD, Migsun Group, adding that the government could have done more to alleviate the pandemic-inflicted pains for the industry. The pandemic has dealt a heavy blow to the industry, and any short-term easy financing solution for the developers could have made the deal sweeter.
A ‘paperless’ Budget
This year, Sitharaman presented India’s first ‘paperless’ Budget, also the first Budget of this decade, carrying a tablet in a red cover, featuring the embossed national emblem in golden colour.
In a break from tradition, Sitharaman, in 2019, switched to the swadeshi bahi-khata, ditching the usual leather briefcase (known as bougette in French form where the word Budget has originated).
What is the total deduction limit for home loan interest paid?
The borrower can claim Rs 2 lakhs as deduction under Section 24 of the IT Act every year against the interest component payment of his home loan. He can claim an additional Rs 1.50 lakhs as deductions, if he is a first-time home buyer, who has borrowed capital to purchase an affordable property for self-use, worth up to Rs 45 lakhs from a financial institution.
What is the time limit to claim deductions under Section 80EEA?
Deductions can be claimed under Section 80EEA for loans taken between April 1, 2019 and March 31, 2022.
Can I claim tax deduction for home loan principal repayment?
This can be claimed under Section 80C along with other deductions under the section.
Budget 2021: What do home buyers and tax payers expect?
What are the benefits that finance minister Nirmala Sitharaman can offer to home buyers and tax payers in Budget 2021? We examine
January 31, 2021: Finance minister Nirmala Sitharaman is expected to put her cautious approach to rest, when she presents the Budget 2021-22 on February 1, 2021, as the central government prepares to rid the country of the economic ill effects of the Coronavirus pandemic. As the prime minister Nardendra Modi-led central government frantically launched support measures to pull the economy out of a technical recession, after the human and an economic catastrophe caused by the COVID-19 carnage resulted in GDP in April-June touching 23.9% below its 2019 level, high-frequency indicators are pointing towards a nascent recovery.
ecis2016.org data show quarterly home sales in India’s eight prime residential markets increased 68% in the three-month period ended December 31, 2020, as various support measures launched throughout the year by the centre increased housing affordability, prompting buyers to invest in capital-intensive assets such as immovable property, in spite of the ongoing economic depression. While record low interest rates, festive discounts and stamp duty reductions by some states encouraged buyers to invest in homes in the aftermath of the pandemic, new supply in the key housing markets also increased during this period, because of the liquidity support offered by the government to the developer community.
ecis2016.org numbers show a total of 54,329 new units were launched during the October-December period in 2020 amidst the phased easing of restrictions.
[ecis2016.org] Festive season brings some cheer to realty in Q4; home sales, new supply see quarterly improvement
Nevertheless, key indicators of growth in the housing sector would take a lot longer, to reach their pre-COVID-19 levels and a lot more is expected from the FM to fuel demand in this sector, the largest employment-generating sector in India after agriculture. Now, what steps should Sitharaman take, on February 1, 2021, to trigger fresh demand in the housing segment that directly contributes nearly 6%-7% to national GDP?
Extension of Section 80EEA timeline
Under Section 80EEA, the government offers additional tax benefits of Rs 1.50 lakhs per annum, on the interest component of home loans to first-time home buyers, if they invest in affordable properties, i.e., housing units worth up to Rs 45 lakhs. With a view to achieving the target of ‘Housing for All by 2020’, the centre extended the interest deduction under Section 80EEA for loans taken during the period between April 1, 2019 and March 31, 2021.
With measures already in place to promote investment in affordable property, the budget is the ideal time to announce a further extension of the benefits under Section 80EEA, especially during the current slowdown.
Considering India’s stimulus spending in response to the pandemic has been much less overwhelming than other large economies – the FM has so far announced a stimulus package of Rs 29.87 lakh crores or 15% of GDP – she still has a lot of scope for measures such as these, to revive demand in housing.
Extending the cap under Section 24
Another recurring demand from the home buyers, has been increasing the limit of tax deduction allowed under Section 24 of the income tax (IT) law. If the property is not generating income (as is the case with a self-occupied or a vacant property), the borrower can claim a deduction of up to Rs 2 lakhs on the home loan interest paid in a financial year under this section.
Since home loans have long tenures, a large part of which goes in repaying the interest component of the borrowed capital, it only makes sense that the deduction limit under Section 24 be extended to at least Rs 3-4 lakhs a year.
Extending the cap under Section 80C and a new section for principal repayment
Industry body CREDAI has also suggested that the deduction limit under Section 80C, for principal repayment on home loans, be increased, to make the provision more exhaustive. Section 80C covers deductions on home loan principal repayment under its overall deduction limit of Rs 1.50 lakhs a year. Stamp duty and registration charges for property purchase can also be included as deductions under this section.
The body has also suggested that a separate exemption for principal repayment on home loans be introduced, in this year’s budget. “We suggest that the deduction under section 80C for principal repayment of housing loan should be increased from the existing limit of Rs 1,50,000. The deduction for principal repayment of housing loan can be considered for a separate or standalone exemption,” CREDAI said in a statement.
Setting off of losses on rental income
Although a let-out property will generate a certain income for the owner, it is quite possible that the income is much less, as compared to the liability coming in the form of home loan interest and property tax. This has been the case with many landlords during the pandemic. In order to provide relief to such tax payers, Section 71 of the IT law prescribes setting-off of losses from house property under other heads which include income from salary, income from other sources, profit and gains of business and profession and capital gains. The unadjusted losses under other heads could be carried forward for eight years, after the year in which the loss occurred. After this eight-year period, the set-off is permitted only under the head ‘income from house property’. However, the amount that could be set-off against other heads had been capped at Rs 2 lakhs per year in the 2017-18 budget for all sorts of properties, self-occupied or rented. Hence, there is a case for increasing the limit for set-off of losses to Rs 4 lakhs to Rs 5 lakhs.
[ecis2016.org] Everything you need to know about income from house property
Rationalisation of GST rates
Another move that could augur well for the Indian housing sector is streamlining of the Goods and Services Tax (GST) regime. This could be achieved by bringing a uniform tax rate for affordable, as well as non-affordable categories. Presently, buyers have to pay 5% GST without input tax credit (ITC) on purchase of non-affordable homes and pay 1% GST without the ITC while buying affordable properties. In 2019, the government reduced the GST rates applicable to housing, offering higher rebates to the affordable category.
If the developers are allowed to enjoy the ITC along with the capped rate of 1% GST across projects, buyers would find property purchases way more cost efficient and much less complicated.
[ecis2016.org] Impact of GST on real estate and home buyers
While at it, the centre could also extend the deadline for the PMAY’s credit-linked subsidy scheme (CLSS) for the mid-income category for another year, till March 31, 2022. It has already extended the deadline to avail of the benefits of the scheme, for the economically weaker sections (EWS) and the low-income group (LIG) categories.
It is also high time that the government considered granting the sector its long standing demand – that housing be conferred an industry status, to be able to get priority sector lending from financial institutions. So far, only the affordable housing segment enjoys infrastructure status.
Tax relief for second home buyers
According to Lincoln Bennet Rodrigues, founder and chairman of Bennet & Bernard Group, there is also a specific need for IT relief on second homes, as this will benefit home buyers in a big way and stimulate the realty sector. “In the aftermath of the COVID-19 pandemic, people have realised the importance of larger spaces and self-sustained communities. So, the desire to have bigger spaces for the same investment, would definitely shift the focus from buying realty in cities to second homes in holiday destinations,” he adds.
Budget 2020: Changes in income tax laws that can help home buyers
By: Balwant Jain
We look at some suggestions, vis-à-vis income tax laws for individual tax payers that the finance minister can consider in the Union Budget for 2020-21, which can help property buyers and boost demand in the real estate sector
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January 15, 2020: The real estate sector has been struggling for quite some time though the government has been doing its bit, to revive the sector. The government has reduced GST rates and has attempted to rationalise the GST rates on residential units. For the affordable housing segment, the government has reduced the GST rates to as low as 1% and for non-affordable housing, the GST rates have been brought down to 5% from the earlier rate of 12%. The government has also expanded the scope of the benefit of tax exemption available to the developers, with respect to projects in the affordable housing segment. Nevertheless, there is scope for more measures, especially for individual tax payers.
Introduction of a separate deduction for repayment of housing loans
Presently, under Section 80 C of the Income Tax Act, individuals and HUFs are allowed to claim a deduction of up to Rs 1.50 lakhs for various items, including repayment of home loan taken for a residential house from specified institutions. Due to various items clubbed together in Section 80 C, like Employee Provident Fund, NPS, life insurance premium, school fee for children, NSC, PPF, etc., in many of the cases the meagre limit of Section 80 C gets exhausted before any amount with respect to the home loan repayment can be claimed. With prices of houses increasing and the huge amount of EMIs to be serviced, it is logical and rational that the government carve out the deduction for home loan repayment from Section 80 C and introduce it as a separate section, to allow exclusive deduction for home loan repayment. This will certainly boost the real estate sector and incentivise home buyers, especially the millennials, to buy residential houses and avail of the exclusive tax benefits.
Rationalising the tax slabs and rebate under Section 87A
Presently, under Section 87A, an individual tax payer is entitled to a rebate of up to Rs 12,500, in case the total income is below Rs 5 lakhs. Once this threshold limit is crossed, the tax payer loses this rebate of Rs 12,500 fully, even in cases where the taxable income exceeds the threshold by just a few hundred rupees. This steep rise in tax liability by Rs 12,500, once the income crosses this limit of Rs 5 lakhs, induces many a tax payers to manipulate and keep the income below Rs 5 lakhs, to avail of this benefit, especially the self-employed ones, who have the scope to manipulate the taxable income. Since the banks and housing finance companies lend on the basis of income of the applicant, such tax payers are not able to get home loans of the amount that they otherwise would have been eligible for, had they disclosed their real income.
In order to discourage such manipulation, the government can introduce the provision of granting marginal relief in such cases, so as to provide that the increased tax liability shall not exceed the amount by which the taxable income exceeds the threshold limit of Rs 5 lakhs. For example, if the taxable income of a person is Rs 5.05 lakhs, his tax liability presently comes to Rs 13,500, which exceeds the amount of Rs 5,000 (the amount by which the taxable income exceeds the threshold limit of Rs 5 lakhs). If the government introduces the benefit of marginal relief in such marginal cases, the tax liability in this case will not exceed the incremental income of Rs 5,000. Such relief would incentivise the individual tax payers to offer full income for tax, in case the marginal income exceeds the threshold income by a few thousands only.
Individual tax slabs
Presently there are three tax slabs for individuals. After the basic exemption of Rs 2.50 lakhs, the tax rate is 5% up to Rs 5 lakhs for individual tax payers who have not completed 60 years and for all HUFs. After this initial tax slab of 5%, the slab rises steeply to 20%, for those having income between Rs 5 lakhs and Rs 10 lakhs. This psychologically induces the tax payers to manipulate their incomes, so as to avoid the shock of a steep increase in the tax liability, relative to taxable income. The next slab of 30% is applicable for income above Rs 10 lakhs. This maximum rate of tax for such a low threshold limit, ignores the cardinal principle of ‘taxing people accordingly to their ability to pay’.
As the government needs to get the data through filing of ITRs, it may not tweak the basic exemption limit. However, in order to make the tax slabs rational, to discourage individual tax payers from manipulating their taxable income and to make the tax slab structure rational on the basis of ability to pay, the government could:
- Retain the basic exemption of up to Rs 2.50 lakhs.
- Retain the 5% slab rate for income from Rs 2.50 lakhs to Rs 5 lakhs.
- Introduce a new tax slab of 10% for income between Rs 5 lakhs and Rs 10 lakhs.
- Fix the tax rate at 20% for the income slab between Rs 10 lakhs and Rs 25 lakhs.
- For income between Rs 25 lakhs and Rs 1 crore, fix a slab rate of 30%.
- For income beyond Rs 1 crore, fix the tax slab at 40%, without any surcharge.
After the reduction in the tax rates for companies, the highest rate applicable for individuals in higher tax brackets is higher than that for companies. It is high time the individual tax payers are also treated fairly and tax rates reduced. The rationalised rates will ensure better tax compliance and collection, as propounded by economist Arthur Laffer, who showed that lower tax rates result in overall higher tax collection. With higher declared income, individuals will be able to get higher home loans. Moreover, the tax slabs suggested above will leave more money in the hands of tax payers, to service the home loan EMIs. These measures will help create demand for affordable housing and help the government its Housing for All by 2020 mission.
(The author is a tax and investment expert, with 35 years’ experience)
Update on July 5, 2019: Finance minister Nirmala Sitharaman, while presenting the Union Budget 2019-20, on July 5, 2019, said the government is proposing additional tax deduction of Rs 1.50 lakhs on the interest paid on home loans taken up to March 31, 2020.
In terms of corporate taxes, Sitharaman also proposed that 25% corporate tax will apply on companies with up to Rs 400 crores turnover and this would cover 99.3 pc of corporate India. The government aims to simplify tax administration and bring transparency, she added.
(With inputs from PTI)
Budget 2019: What do home buyers need from the finance minister?
By: Balwant Jain
July 4, 2019: We look at some suggestions, on what India’s first full-time woman finance minister can do, for home buyers, in the upcoming Budget 2019
Introducing a separate limit for home loan principal repayment
Presently, a deduction of Rs 1.50 lakhs is allowed, for repayment of the principal amount of home loans, under Section 80 C. Since Section 80 C was introduced in 2003, with an initial limit of Rs 1 lakh, it has only been revised once in 2014, to Rs 1.50 lakhs. This revised limit is not sufficient, to keep pace with inflation during the period. The almost stagnant limit, accompanied with the introduction of various items like deposits under the Senior Citizen Scheme, five-year tax-saving fixed deposits, national pension system, Sukanya Samriddhi Scheme, etc., makes this space crowded.
Moreover, with the ever increasing prices of real estate, the amount needed to finance a residential unit has skyrocketed over the years.
Due to the many items covered under Section 80 C, the limit of Rs 1.50 lakhs gets exhausted easily, with just a few items like life insurance premium, provident fund/ public provident fund contributions, tuition fees for school children, etc. These items generally crowd out the principal repayment of home loan for most of the tax payers, especially those who are salaried. So, considering all the above reasons, the finance minister should introduce a separate limit for home loan repayment through a separate section, by carving it out from Section 80 C.
Removing the limit of Rs 2 lakhs, for deduction with respect to interest paid
The government wants everyone to have a house by 2022 but there are certain provisions in the income tax laws, which come in the way of achieving this objective. A person who has borrowed money, for the purchase or construction of a house for self-occupancy, is entitled to claim a deduction for interest paid up to Rs 2 lakhs, whereas, there is no such limit if the house property is let-out. The excess amount of interest, if any, paid on money borrowed for self-occupied property, gets lost.
Logically, the law should be the other way round. If the government wants people to own houses, it should provide tax benefits for full interest paid, if the house is to be used for self-occupancy and the restriction, if any, should be applicable on people who wish to do tax arbitrage by buying a house and letting it out. Hence, the finance minister should remove the cap of Rs 2 lakhs on interest for self-occupied houses.
The interim budget 2019 recognised the practical need of a person to have two houses for self-occupancy for various reasons and introduced a law, allowing a tax payer to have two self-owned houses as self-occupied. However, the amount of interest that can be claimed for both the houses together, has been retained at Rs 2 lakhs. If it is not possible to remove this limit altogether, the finance minister should allow a limit of Rs 2 lakhs on interest, for each of the self-owned and self-occupied houses.
Increase in the limit of loss to be set off against income
Prior to 2018, there was no restriction on the amount of loss under house property, which could be set off against other income of the year. However, the budget of 2018 introduced a limit of Rs 2 lakhs, beyond which loss computed under the head of house property, cannot be set off against other income. Looking at the amount of loan and interest that one has to pay, this amount is insufficient. This limit of loss that can be set off against other income, should be raised to Rs 5 lakhs, to give relief to the small tax payers in urban areas.
Carry forward of unabsorbed losses, under the head income from house property
Housing for All by 2022 is the ambitious mission of the government and it has introduced various fiscal incentives for first-time home buyers in various categories, by way of cash subsidies, etc., but there are some hindrances, as well. Presently, any loss beyond the limit of Rs 2 lakhs under the head ‘income from house property’, is not allowed to be set off against other income and thus has to be carried forward. This loss beyond Rs 2 lakhs, is allowed to be carried forward for eight subsequent years, to be set off against income under the house property head only. Since a home loan is a long-term product, where the general tenure is 20 years, there is no probability of the tax payer having any positive income under the head ‘Income from house property’ unless the tax payer prepays the home loan during the initial years.
As the probability of the tax payer having a positive income under this head is almost negligible during the initial nine years of the home loan and if the government really wishes to promote Housing for All, it should remove the restriction of eight years for carry forward of losses under the house property head and allow this loss to be carried forward and set off, till it gets fully set off, so as to let the tax payer have the benefit.
Rationalisation of GST rates for under-construction houses
The average home buyer is not tax-savvy and may not understand the intricacies of the tax laws. The recent decision of the GST Council, to reduce the GST rates for various categories of houses, accompanied with an option to the developer, to migrate or not migrate to the reduced rates regime for pending projects, has caused confusion in the minds of home buyers.
The reduction in GST rates for under-construction properties, has been coupled with a removal of the input credit, for the GST paid on the inputs used for the construction of the property. Although the move was intended to give relief to the home buyers, the results have been to the contrary. While developers have been collecting reduced GST rates, they have increased the base price of the property. This has resulted into higher cost to the home buyers, as the developers are not able to utilise the input credit which arises at higher rates of GST on such inputs, against the liability of lower GST rates on sale of such under-construction properties. This is happening, because the costing of the developer is not transparent.
Decisions pertaining to GST rates are taken by the GST Council, headed by the finance minister and hence, are outside the purview of the union budget presentation. Nevertheless, the GST Council needs to critically examine the real impact of the reduced rates regime without the input credit for developers, if it really wants to provide relief to the home buyers.
This should be done with collection of data across the country about the rates of properties booked, before and after the implementation of the proposal to reduce the GST rates.
(The author is a tax and investment expert with 35 years’ experience)
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