The tax deduction is likely to promote home ownership and give a fillip to a number of industries including steel, cement, brick, wood, and glass besides providing jobs to thousands of construction workers

As per the Union Bubudget provisions, the additional interest deduction on housing loan would be subject to the condition that the value of the residential house property should not exceed Rs. 40 lakh. Finance Minister P. Chidambaram also increased the outlay for Rural Housing Fund to Rs. 6,000 crore in the 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 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 the consideration exceeds Rs. 50 lakh. Agricultural land will be exempted from this TDS. The move is likely to promote home ownership and give a fillip to a number of industries including steel, cement, brick, wood, and glass besides providing jobs to thousands of construction workers. The Minister also focussed on tackling the housing shortage, which stood at 18.7 million units.

Industry reaction

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 for 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. “If the limit is not exhausted, the balance may be claimed in 2015-16. This deduction will be over and above the deduction of Rs. 1.5 lakh allowed for self-occupied property under Section 24 of the Income Tax Act,” he said.

DLF group executive director Rajiv Talwar said that there are good signs for the realty sector in the Budget, such as extra interest deduction for first-home buyers and urban housing fund, which would boost demand. “Though on the whole, the Budget seems to be balanced and in tune with the current economic requirements, the real estate sector has not received much of a boost overall.”

“It is disappointing that the Finance Minister is missing out on affordable and rental housing and banking reforms,” Confederation of Real Estate Developers Association of India (CREDAI) National President Lalit Kumar Jain said.

The provisions for budget homes will not be sufficient to create more demand and high-end homes have become even costlier because of the increased service tax, CREDAI said.

CBRE South Asia CMD Anshuman Magazine termed additional interest deduction for first-home buyers as positive for the real estate industry.

IndiaBulls Chief Executive Officer Gagan Banga said the proposal to offer an additional interest deduction will not only help housing as such, but will also lead to an increase in demand for steel, glass, cement and other industries. “The setting up of Rs. 2,000 crore urban housing fund and greater impetus to rural housing fund will go a long way in giving the much needed support to housing industry,” he added.

Consultant Cushman & Wakefield South Asia Executive Managing Director Sanjay Dutt also hailed this decision.

SARE Homes Executive Director David Walker said the additional interest deduction would help to revive the demand for housing stock.

Propequity Founder and CEO Samir Jasuja said additional interest deduction would provide some stimulus to the demand in Tier-II and -III cities. “However, considering the inflationary trends in the country, it would have been more desirable had this provision been extended to all home loans irrespective of any specific segment.”

Tata Housing MD and CEO Brotin Banerjee said the additional tax deduction on home loans is expected to boost demand for affordable housing.