More tax incentive for home buyers in Budget 2015

The atmosphere this week in the country is abuzz with Budget 2015 discussions. Several experts have shared their predictions and wish lists on the real estate sector and questions around it. To add to the ring, Vaibhav Sankla, director, H&R Block shares his opinion on “The scope in budget for more tax incentive for home buyers?”

Sankla shares his wealth of information and explains the current scenario of tax break on home purchase to individuals and its effectiveness. He explains the deduction of interest on home loan and mentions that it is restricted to Rs. 200,000 per financial year if the property is self occupied. “The deduction is made under section 80C on repayment of housing loan taken from prescribed institutions and on payment of registration fee and stamp duty. It is also made under sections 54 and 54F from capital gains for reinvestment in a house.”

Deduction of interest on loan taken for repairs or renovation or reconstruction of the house is restricted to Rs. 30,000 if the house is self-occupied. He also divulges that “Section 80EE provides some additional tax benefit on interest of home loan. However, the benefit under this section would end in this financial year.”

On the potential of giving higher tax breaks to individual buyers, Sankla thinks that “A deduction for payment of brokerage can be introduced in section 24 of the Income Tax Act, 1961 as many buyers are investors/ real estate brokers who lease their houses to tenants. To prevent misuse, deduction can be restricted to one month’s rental income.”

Further, an allowance for depreciation may also be provided for under section 24. With the amendment in Finance Act 2014, deductions under sections 54 and 54F on reinvestment in the house is restricted to the cost of one house only.

All these recommendations, if implemented, Sankla states would provide additional incentives to home buyers and would definitely go a long way in increased demand in residential segment.

Talking of an innovative way to give tax breaks to individuals to encourage home purchase, he says the budget should allow increased deduction on housing loan. He opines that deduction of Rs. 200,000 on interest of housing loan in tier 1 and 2 cities is not enough. “Cities like Mumbai and Delhi needs a higher limit of deduction, say Rs. 500,000. For other major cities, it could be Rs. 400,000 and Rs. 300,000 for the rest of the cities.”

 

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