PremiumThe govt is considering increasing the annual tax deduction limit for repayment of home loan principal under Section 80C of the Income Tax Act to ₹2 lakh from the current cap of ₹1.5 lakh, the officials said, requesting anonymity
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Finance minister Nirmala Sitharaman may propose higher tax deductions on home loans in the budget to boost housing demand, two officials familiar with the development said.
The government is considering increasing the annual tax deduction limit for repayment of home loan principal under Section 80C of the Income Tax Act to ₹2 lakh from the current cap of ₹1.5 lakh, the officials said, requesting anonymity.
The officials said that the move is being contemplated to provide relief to taxpayers and boost real estate demand.
Under section 80C, taxpayers can also invest in several government schemes, including Public Provident Fund and National Savings Scheme to claim deductions on their taxable income.
Sudhakar Sethuraman, a partner with Deloitte India, said an increase in the deduction limit is required as a significant time has passed since the last increase in 2014.
In addition, the surge in expenses amid the pandemic and rising inflation also calls for relief to taxpayers as provided for in several other countries, Sethuraman said.
Queries sent to the finance and housing ministries remained unanswered till press time.
Ved Jain, a former president of the Institute of Chartered Accountants of India (ICAI), said the government’s emphasis on the new tax regime, which offers lower tax rates but is devoid of deductions, may discourage it from expanding deductions in the old tax regime.
However, if the government does increase tax deductions for home loans, it could be done with the addition of a separate clause, on the lines of the additional benefit of ₹50,000 for contribution towards National Pension Scheme under Section 80CCD, Jain said.
Sitharaman announced the new tax regime in the 2021 budget, but there have been few takers, as most taxpayers opted to claim deductions and exemptions.
Pramod Kathuria, co-founder of Easiloan, said any tax relief on home loans would encourage buyers across affordable, mid and high-range properties to advance their purchasing decisions.
“The revised upper limit on principal helps home loan borrowers across the spectrum, recent borrowers as well as older ones," he said.
The real estate sector is expected to get another incentive in the form of an additional interest deduction of ₹1.5 lakh on affordable home loans by another year until March 2023.
The deduction has been extended twice before.
The incentives would be a major boost for the sector that is recovering from the covid-induced low demand and halt in construction activities several times over the past two years due to various restrictions during the pandemic.
The tax incentives will make home purchases affordable and boost sales, said Vikas Wadhawan, group chief financial officer at Housing.com.
In 2021, India’s residential property market saw a revival in sales, reaching over 90% of the pre-pandemic levels.
According to data from Anarock, the housing inventory overhang across the top seven cities plunged to 32 months by 2021-end, closing in on the 30 months reading by 2019-end.
According to the data, the inventory overhang in the top seven cities stood at 55 months by 2020-end.
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