Additional Rs 1 lakh interest deduction for first home buyers

Offering sops to push housing demand, Finance Minister P Chidambaram today allowed an additional interest deduction of Rs 1 lakh to first home buyers for loan up to Rs 25 lakh and announced Rs 2,000 crore for Urban Housing Fund.

Currently, the Income Tax Act allows for deduction of up to Rs 1.5 lakh of interest paid on home loans from taxable income and the additional benefit will be over and above this limit for the first time home buyers.

Chidambaram also increased the outlay for Rural Housing Fund to Rs 6,000 crore in next fiscal from Rs 4,000 crore in this year.

Making luxury homes expensive, the minister proposed to reduce abatement on service tax to 70 per cent from the existing 75 per cent on homes and flats of carpet area above 2,000 sq ft or prices exceeding Rs 1 crore.

He imposed TDS at the rate of 1 per cent on the value of the transfer of immovable property where consideration exceeds Rs 50 lakh. Agricultural land will be exempted from this TDS.

Presenting the Budget 2013-14, Chidambaram said: "A person taking a loan for his first home from a bank or a housing finance corporation up to Rs 25,00,000 during the period April 1, 2013 to March 31, 2014 will be entitled to an additional deduction of interest of up to Rs 1,00,000."

The Minister also focussed on tackling housing shortage, which stood at 18.7 million units, in this current Budget.

"The Rural Housing Fund set up through the National Housing Bank is used to refinance lending institutions, including RRBs, that extend loans for rural housing.

"So far, 400,000 rural families have taken loans. In the last Budget, we provided Rs 4,000 crore to the fund. In consultation with RBI, I propose to provide Rs 6,000 crore to the Rural Housing Fund in 2013-14," Chidambaram said.

On similar lines, he proposed to start a fund for urban housing to mitigate the huge shortage of houses in urban areas. Chidambaram said NHB would be asked to set up the Urban Housing Fund and, in consultation with RBI. "I propose to provide Rs 2,000 crore to the Fund in 2013-14".

Stating that homes and flats with a carpet area of 2,000 sq ft or more or of a value of Rs 1 crore or more are high-end constructions where the component of 'service' is greater, he proposed to "reduce the rate of abatement for this class of buildings from 75 per cent to 70 per cent".

Existing exemptions from service tax for low-cost housing and single residential units would continue, he added.

Real estate developers and analysts welcomed the proposal to give extra interest deduction to first home buyers.

"...It provided a boost to affordable housing with an additional interest benefit of Rs 1 lakh on first-time home loans up to Rs 25 lakh... This will help boost housing sales in Tier II and III cities," Jones Lang LaSalle India Chairman & Country Head Anuj Puri said.