Income Tax: Budget does not sweeten the deal for homebuyers
The new scheme of giving up tax sops on lower tax rates discourages taxpayers from buying a house with loan, as they have to forgo tax deduction on home loan interest
Over the past few years, the government has been driving an objective of ‘Housing for All by 2022’, giving a push to affordable housing and encouraging first-time homebuyers under various schemes. This includes substantial expenditure by the government in the housing sector under the PM Awas Scheme, providing income tax and GST benefits to developers for promoting affordable housing projects and also providing tax incentive to first time homebuyers buying houses under affordable housing projects.
However, despite various measures the sector continues to be under much stress and demand for housing projects is still sluggish. A large number of private sector developers are struggling to stay afloat due to sluggish demand for housing units and low consumer sentiment for investing in real estate.
On the tax incentive side, currently an additional deduction of Rs 1.5 lakh is available to homebuyers for interest paid on home loans taken on or before March 31, 2020 for purchase of an affordable house. Applicability of this tax incentive for homebuyers is now proposed to be extended by one more year; i.e., loans taken on or before March 31, 2021. Further, in order to give further incentives to developers developing affordable housing projects, due date of approval of affordable housing projects for availing a tax holiday on profits earned by developers has also been extended from existing March 31, 2020 to March 31, 2021.
The existing income tax provisions provide a relaxation window of 5% for non-taxable difference between stamp duty value of a house property and its actual sale price. Realising the stress of the housing sector where sale transactions are actually taking place below the stamp duty value and in order to reduce hardship in case of genuine sale transactions, it is now proposed to increase this variation window from existing 5% to 10%.
Another income tax provision, which may impact house owners, is the limit proposed on Fair Market Value (FMV) on cost of acquisition for properties acquired before April 1, 2001. It is now proposed that for the purpose of determining cost of acquisition, such FMV shall not exceed stamp duty value of such house property as on April 1, 2001, wherever available. In some cases, this may result in additional tax outgo for house owners proposing to sell their house property acquired before April 1, 2001, where they intended to take a higher value as cost of acquisition.
However, one of the major expectations of homebuyers, of an increase in limit for deduction of interest on home loan, which is presently capped at Rs 2 lakh, seems to have been ignored by the government. In fact, the new scheme of different tax slabs proposed in the Budget may not encourage taxpayers to buy house property with loan amount, as new scheme requires taxpayers to forego all deductions, including interest on home loan.
Amidst high expectations, the government doesn’t seem to have offered much to homebuyers. The enhancement of the limit of deviation from the stamp duty rate is a welcome move and demonstrates that the government is receptive towards the needs of the genuine taxpayers. However, the government ought to have done more to encourage the homebuyers to buy house property and bridge the wide gap between demand and supply of the sluggish real estate sector.
Source- Financial Express.
The post Income Tax: Budget does not sweeten the deal for homebuyers appeared first on GST Station.
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