75% raise from earlier Rs 2 lakh

In a big relief to homebuyers and boost the affordable housing segment, the Narendra Modi Government on Friday announced an additional tax deduction of Rs 1.50 lakh on interest paid on home loans taken up to March 31, 2020. This will raise the tax deduction limit to Rs 3.5 lakh and will be applicable on interest paid on housing loan (having carpet area of up to 60 sqm in metros and 90 sqm in non-metros and having value up to Rs 45 lakh).

This will translate into a benefit of around 7 lakh to the middle class homebuyers over their loan period of 15 years.

The Centre is also working on a model tenancy law to do away with tenancy troubles across the country. The model tenancy law will be soon circulated to the States for their comments.

Presenting the first Budget of the Modi Government in its second term, Union Finance Minister Nirmala Sitharaman on Friday said that in order to incentivise purchase of affordable house, it is proposed to provide a deduction up to Rs 1,50,000 for interest paid on loan taken for purchase of residential house having value up to Rs 45 lakh. This shall be in addition to the existing interest deduction of Rs 2 lakh.

“For realisation of the goal of ‘Housing for All’ and affordable housing, a tax holiday has already been provided on the profits earned by developers of affordable housing. Also, interest paid on housing loans is allowed as a deduction to the extent of Rs 2 lakh in respect of self occupied property. Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh.

This will translate into a benefit of around 7 lakh to the middle class home-buyers over their loan period of 15 years,” the Budget said.

“The assessee shall be eligible for deduction in respect of a housing project if a residential unit in the housing project has carpet area not exceeding 60 square meter in metropolitan cities or 90 square meter in cities or towns other than metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region),” the Budget document read.

To align definition of affordable housing under the Income Tax Act with GST Acts, Sitharaman proposed to increase the limit of carpet area from 30 square metre to 60 square metre in metropolitan regions and from 60 square metre to 90 square metre in non-metropolitan areas.

As per the Budget document, this interest deduction will be subject to condition that the loan has to be sanctioned during the current fiscal only. The home buyer should not have any other residential property in his name on the date of sanction of loan.

To achieve the goal of ‘Housing for All’ and affordable housing, Sitharaman said a tax holiday has already been provided on the profits earned by developers of affordable housing.

Sitharaman proposed that several reform measures would be taken to promote rental housing. “Current rental laws are archaic as they do not address the relationship between the lessor and the lessee realistically and fairly. A Model Tenancy Law will also be finalised and circulated to the States,” she added. Terming the current laws to be “archaic”, the Finance Minister announced that a Model Tenancy Law would be circulated among States.

In 2015, the Ministry of Housing and Urban Affairs had released a Draft Model Tenancy Act, which was aimed at regulation of tenancy for commercial and residential properties.

On land parcels held by the public sector units, the Finance Minister said that large public infrastructure as well as affordable housing projects could be developed.

Similarly, under the Pradhan Mantri Awas Yojana (Gramin) a total of 1.54 crore rural homes have been completed in the last five years.

These houses are being provided with amenities like toilets, electricity and LPG connections. With the use of technology, the DBT platform and technology inputs, average number of days for completion of houses has come down from 314 days in 2015-16 to 114 days in 2017-18.