Home Buyer’s Expectations From The Budget

Finance Minister Arun Jaitley should bring in tax reforms to make buying property more beneficial for the first-time home buyers, experts say.

As per current income tax rules (Section 24B), a person can claim an interest deduction of Rs. 2 lakh for self-occupied house, while in case of a second house, home buyers are entitled to claim the entire amount of interest paid as deduction from the income. The current tax regime is pro-investor rather than pro-first-time home buyer, experts say.

“The first time buyer’s exemptions should be at par with investors. In fact government should charge extra from investors,” says Pankaj Kapoor, managing director, Liases Foras, a Mumbai-based real estate research firm.

“The rule should be rationalised. The deduction of Rs. 2 lakh on interest portion of home loan is very low and should be increased,” says Surabhi Arora, associate director of research, Colliers International, a real estate consultancy. The deduction on principal portion should also be increased, she adds.

Another issue which experts think needs to be addressed is the treatment of the interest on home loan deduction in case of delay in construction of property.

As per the current rule, one can claim the entire amount of interest for the pre-construction period only after the completion of the construction in five equal-yearly instalments. But if the construction of the property is not complete within three years then buyers are penalised as the deduction limit reduces to Rs. 30,000 per year.

“The government should incentivise faster construction and timely delivery of properties for the benefit of home buyers. There are close to 25 lakh flats that have launched since 2008, of which 42 per cent have been delayed for more than 2 years,” says Mr Kapoor of Liases Foras.

According to Ms Arora of Colliers International, “The borrowers should get deduction from the year of borrowing not after the completion of the property. As the delay in construction is wide spread, it is impacting a large number of borrowers.”

Experts also feel that the government should raise the house rent allowance (HRA) deduction limit for self- employed people and incentivise buying home insurance to protect people from the loss of property due to natural disasters.

“Salaried persons get HRA as a component of their total salary, and can therefore claim a deduction, which is substantial. House rent deduction of Rs. 2,000 for self-employed under section 80GG of the Act is too low as compared to HRA and hence, the same should be revised to Rs. 10,000,” says Neha Malhotra, executive director of taxation at Nangia & Co, a tax advisory firm

“Considering the loss of assets in natural calamities these day, house insurance premiums could be given tax concessions to encourage the taxpayers to insure their homes,” she added.