House property income tax benefits and other measures for a boost to the realty sector- Will the upcoming Budget deliver?

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The layman will probably have a wealth of expectations from the upcoming Union Budget for 2020, particularly in the issue of taxes. Some relief through tax breaks on house property income is something that many people will expect from the Union Finance Minister. Some of the earlier Union Budgets have come out with advantageous proposals for home owners with a view towards accomplishing the mission of Housing for All by 2022 that the Central Government has already notified.

However, house property income tax benefits and some other measures will go a long way towards lightening the overall burden on home owners and prospective home buyers. This will also do a lot towards boosting the real estate sector in the country.

Some measures that may help Indian real estate and home buyers

A rise in standard deduction could be a good move as suggested by some experts. Based on the Income Tax Act of 1961, when a rented house property is taken into context, the net annual value of this property is worked out on the basis of deduction of the amount of municipal taxes paid from the GRV (gross rental value or usually the income from rent). From this net annual value, standard deduction of 30% is permitted for maintenance and repair costs for the property irrespective of the actual expenditure while there are deductions for interest paid on the loan for the property. The income that is taxable is also determined likewise. This standard deduction of 30% has remained the same from the year 2002 onwards. This may be scaled up to 50% or above, taking inflation into account by way of rising maintenance costs, repair costs and rising utility costs.

The Government may also consider scaling up the deduction for interest repaid on home loans. Interest on home loans is deductible while working out one’s taxable income. This is restricted to Rs. 2 lakh for homes which are self-occupied while there is no restriction on the interest that one can claim as the deduction in case of a property that has been let-out. The Rs. 2 lakh deduction limit also covers pre-construction interest that can be claimed in 5 same installments. Yet, the 2017 Budget limited the amount of housing loss to be claimed in the same year to Rs. 2 lakh and made a provision for carry-forward of the remaining losses for 8 years, to be set-off against income from house property.

In case there is no positive income from house property over this period of 8 years, the loss brought forward will be lapsing and the whole benefit will be lost completely by the taxpayer. Taking into account the fact that the major chunk of EMI repayments in the initial few years of the home loan comprises of interest, the Government can consider scaling up this deduction to Rs. 5 lakh while scaling up the threshold for setting-off losses for lowering the burden of home owners. This will go a long way towards making housing truly affordable.

The real estate sector has been recovering slowly but steadily over the last 2-3 years or so and property prices have largely remained flat or have slightly corrected in this period. Prices in some markets have witnessed modest appreciation as well. Some tax incentives on house property income and other measures will naturally make realty investments more attractive and will encourage prospective home buyers a good deal. This will augur well for the beleaguered sector which is still grappling with the liquidity crunch in spite of a slight revival due to Government sops and a plethora of measures.