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The Real Estate Regulatory Authority (RERA) Bill introduced in 2016 was a huge milestone that brought about massive reforms in the real estate sector of India. Before 2016, this sector was more or less unregulated and dominated by builders. Delays in projects, overvaluation of property and frauds plagued the entire sector. Home buyers were left with unresolved grievances and at the mercy of builders. Since RERA came into the picture, the real estate prices have rationalized, and the sector has fallen in line. Delays in delivery are penalized, and home buyers can get speedy resolution for their grievances. Demonetisation further removed the influx of black money.
Now, budget 2018 is on its way riding on high expectations from the home buyers.
Deduction of Interest Expense
Currently, home buyers can claim deduction up to Rs. 2 lakhs towards home loan interest under section 24 of Income Tax Act. This provision applies to a self-occupied house. There is no upper limit on the amount of deduction for the house properties that are let out. However, such deduction is allowed only for a property whose construction is completed within three years from the end of financial year in which loan was taken.
After demonetization and RERA, many builders have applied for bankruptcy and numerous projects have got delayed.
Persons who have bought homes in the past 2-3 years may not be able to comply with completion criteria of 3 years and that too without any fault of theirs. Relief should be given to this category by extending the construction completion stipulation to at least five years.
Preconstruction Interest Expense
As mentioned in the earlier point, preconstruction interest expense is not allowed as deduction. Currently, homeowners can accumulate this interest expense and claim it in five equal installments from the year the construction is completed. Such instalment is in addition to current interest expense. However, for self-occupied or vacant house property owners, the ceiling of Rs. 2 lakhs may not allow for the complete deduction of the amount of preconstruction interest. Budget 2018 should specify a separate ceiling for preconstruction interest over and above the limit of Rs. 2 lakhs or simply increase the number of years in which preconstruction interest can be claimed.
Loss from House Property
In case of property given on rent, the loss from house property can be claimed up to Rs. 2 lakhs in a financial year. Homeowners specifically those who have “deemed let out” properties would want to see an increase in the upper ceiling of Rs. 2 lakhs as they do not earn any real income on such house property. The unadjusted loss can be carried forward for eight assessment years, but there is a limitation of this loss being allowed as a deduction only against Income from House property which makes upper limit of Rs. 2 lakhs inadequate. These two are extremely restrictive clauses, and a relief from them would be a welcome move in budget 2018.
Relief on Repayment of Principal Amount
The repayment of a principal portion of the home loan is eligible for deduction under section 80C to the extent of Rs. 1.5 lakhs. Apart from home loan, section 80C’s 1.5 lakhs limit also includes certain other investments like LIC, PPF, Life Insurance Policy, etc. Thus, the eligible deductions usually exceed the amount of Rs. 1.5 lakhs. The government should specify a limit for repayment of home loan principal which is separate from that of other investments made so that individuals can claim benefit. In most of the cases, the eligible amount of investment itself totals to more than 1.5 lakhs easily.
GST on Homes
At present, GST is not applicable to “ready to move in” houses. However, it is being charged with all construction material and services availed by the builder for construction of the property. In the present scenario, the applicability of GST to constructed houses is expected to bring down the final house property prices.
Home Loan Interest Rates
The current rate of interest on home loans is at an all-time low. Home buyers would prefer to see this rate sustained or lowered furthermore. The reason behind this fall has been demonetization which led to thousands of crores of rupees making their way into mainstream banking. This brought a lot of liquidity to banks, which were in turn happy to lend the money on lower rates. If the budget 2018 along with RBI manages to maintain CRR with banks in order to keep the rates low, then home buyers can have a good reason to rejoice.
Budget 2018 is a key budget for the government as it completes four years in power and is to go for elections next year. It remains to be seen how much of the budget will be in order to ease the life of a common man.