Union Budget: FM pushes builders to construct affordable homes, with offer of full tax rebate
Moneylife Digital Team 01 March 2011

Industry, analysts welcome clutch of proposals for housing for weaker sections and lower income group

New Delhi:  The government has proposed a full tax rebate on affordable housing projects under a notified scheme, while also raising the ceiling of 1% interest subsidy on home loans up to Rs15 lakh from the current Rs10 lakh.
The proposal has been made in the Union Budget for 2011-12, which was presented by finance minister Pranab Mukherjee in Parliament on Monday. This proposal for 100% tax deduction on capital expenditure incurred for developing affordable houses is aimed at encouraging builders to pay more attention to constructing such houses, reports PTI.

"Considering the importance of housing, I propose investment-linked deduction to businesses, which develop affordable housing under a notified scheme," the finance minister said.

Currently under section 35AD of the Income Tax Act, a housing project for slum re-development and rehabilitation is incentivised with 100 per cent tax exemption.

The incentive has been extended to "developing and building a housing project under a scheme for affordable housing framed by the central government or a state government, as the case may be, and notified by the board in this behalf in accordance with the guidelines as may be prescribed," the budgetary document stated.

Raising the limit for 1% interest subsidy on home loans to up to Rs15 lakh from the current of Rs10 lakh could encourage buyers of low-cost houses. The finance minister also increased the value of houses eligible for availing such subsidy by Rs5 lakh to Rs25 lakh.

"To further stimulate growth in the housing sector, I am liberalising the existing scheme of interest subvention of 1% on housing loans by extending it to housing loans up to Rs15 lakh, where the cost of the house does not exceed Rs25 lakh from the present limit of Rs10 lakh and Rs20 lakh respectively," Mr Mukherjee said. The government also enhanced the existing housing loan limit to Rs25 lakh from Rs20 lakh under priority sector lending on account of increase in prices of residential properties in urban areas.

On the development of homes for the poor, Mr Mukherjee said: "Credit enablement of economically weaker sections (EWS) and low income group (LIG) households is a serious challenge. To address this issue, I propose to create a Mortgage Risk Guarantee Fund under Rajiv Awas Yojana. This would guarantee housing loans taken by EWS and LIG households and enhance their credit worthiness."

The finance minister also announced enhancing the provision under the Rural Housing Fund to Rs3,000 crore from the existing Rs2,000 crore, to provide housing finance in rural areas at competitive rates.

Welcoming the proposals, real estate developers and analysts said these steps would encourage builders to give more emphasis on projects for homes costing up to Rs 25 lakh.
Anuj Puri, chairman and country head of realty consultant Jones Lang LaSalle India, said companies such as Unitech and Ansals, which are rolling out budget housing, would be benefited by an increase in volumes. "The one per cent interest subvention for home loans up to Rs15 lakh from the previous limit of Rs10 lakh will come as a relief to home loan borrowers in the LIG segment," he said. Raising the priority home loan limit is also good news for the LIG segment.

Cushman & Wakefield India, a commercial real estate consultancy, said the proposals will help developing affordable houses in smaller cities. "The announcement...will enable to create a demand for housing in smaller cities, where housing is available for a ticket size of less than Rs25 lakh. This is expected to increase the development momentum in such locations," Anurag Mathur, managing director, Cushman & Wakefield India, said.

Parsvnath Developers chairman Pradeep Jain said the measures would encourage builders to focus more on constructing affordable housing projects. "This is an excellent move. It will really boost developers' morale to go more for such projects," he said.

Unitech managing director Sanjay Chandra said the measures such as expanding the coverage of interest subvention scheme and providing 100% deduction in respect of capital expenditure incurred on development of affordable housing, "will certainly aid in boosting the demand and development of affordable housing in the coming months".

Some industry players, however, expressed their unhappiness at the government's decision not to re-introduce the tax exemption scheme to develop affordable houses under section 80IB(10) of the Income Tax Act.

In the Union Budget for 2010-11, the government had announced a one-time interim relief for the housing and real estate sector by allowing builders to complete affordable housing projects in five years instead of four years, to claim deductions on profit under section 80IB(10) of the Income Tax Act.

An extension will be available for housing projects approved on or after 1 April 2005. Under the existing provision of section 80IB(10), 100% deduction is allowed to developers to build affordable housing projects, provided the project is sanctioned before 31 March 2008.

Amit K
1 decade ago
Would agree with Mr. Chandra. A welcome move by FM, allowing interest subvention of 1% that will help boost the demand for low-and mid-cost housing and will it make it easy-on-pockets of the buyers in the said bracket to own a house of their dreams.
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