GR Exclusive: Fintech CEO Says, Raising Tax Reliefs To Rs 5 Lakh On Home Loans In Budget To Revitalize Market

The Interim Budget 2024 is the next big development ahead of the Lok Sabha Election. The interim budget will be presented by Finance Minister Nirmala Sitharaman on February 1, 2024. This will be Sitharaman's sixth budget since she took charge as FM. In an exclusive with GoodReturns.In, a fintech major, BASIC HOME Loan's CEO and Founder, Atul Monga said that the real estate sector expects key changes in tax exemption limits, criteria for affordable housing, and interest subvention schemes for a significant boost in home loans.

He revealed that the real estate sector specifically expects measures related to home loans and affordable housing in the Interim Budget for the financial year 2024-25. As per him, these expectations are in regards to making housing more accessible and affordable ahead.

Here are the excerpts of the interview with GoodReturns.In.

Monga said, "As of 2024, the Indian real estate sector has specific expectations from the Interim Budget, particularly concerning home loans and affordable housing. The industry is advocating for a significant increase in the tax deduction for home loan interest under Section 24 of the Income Tax Act. Currently capped at INR 2 lakh, there is a push to raise this limit to at least Rs 5 lakh. This adjustment is expected to revitalize the market, especially in the budget homes segment."

Under section 24, self-occupied residential house property, interest incurred on capital borrowed for acquisition or construction of house property, and tax deduction of up to Rs 2 lakh is allowed. The deduction shall be allowed if capital is borrowed on or after 01-04-1999 and acquisition or construction of house property is completed within 5 years. Also, there is a deduction of Rs 30,000 available on self-occupied residential house property, interest incurred on capital borrowed for reconstruction, repairs or renewals of a house property.

Furthermore, Monga believes that there is an urge from the government to reevaluate the qualifying criteria for affordable housing. He highlighted that the current price limit of up to INR 45 lakh for affordable housing is seen as unrealistic for major cities. For instance, the metro city's budget can be increased to around Rs 70-75 lakh. Adjusting these limits would make more homes accessible to a broader range of buyers, enabling them to benefit from government subsidies and reduced GST rates.

Another significant expectation, as per Monga, is the release of government-owned land for affordable housing. He added, "This move would address the land shortage in this crucial housing segment and potentially lower real estate prices overall. These changes are anticipated to bring a decisive boost to affordable housing, which has been severely affected by the pandemic, especially among its target audience."

"These expectations highlight the sector's focus on making housing more accessible and affordable, particularly in light of the economic challenges posed by the pandemic and subsequent market shifts," Monga said.

Also, Monga added, "There is also high expectation for the implementation of the interest subvention scheme for urban housing. This scheme introduced in October, pending cabinet approval, aims to provide significant interest subsidies on housing loans, potentially extending the cap to Rs 50 lakh under the Pradhan Mantri Awas Yojana. This scheme aims to provide an annual interest subsidy ranging from 3% to 6.5% on loans up to Rs 9 lakh. This move is expected to boost the demand for home loans significantly, aiding a vast segment of urban homebuyers, particularly those in lower-income groups, and revitalizing the housing market."

The interim budget will be provisional and a full-fledged union budget will be announced by the winning party in the Lok Sabha election which will be held between April to May this year. The full-fledged Union Budget for FY25 is most likely to be presented in late May 2024 or after.

Home loan rates have significantly jumped in 2022 after RBI aggressively hiked the policy repo rate by 250 bps in FY23 due to extreme inflationary pressure. However, RBI kept the repo rate at 6.5% since the onset of the current financial year, and this has been a much-needed relief for EMI-dependent homebuyers in times of stubbornly high inflation. Typically, rate cut, status quo, or rate hike, in either case, homebuyers will gauge RBI monetary policy outcomes since the key repo rate is directly linked to lending rates. While the repo rate is a tool for RBI to control inflationary pressures, however, this benchmark rate is also the interest rate at which the central bank lends money to banks during a shortage of liquidity. And hence, with any change in repo rate, banks are likely to pass on the impact to end consumers.

Currently, India's CPI inflation for December 2023 surged to a four-month high of 5.69% compared to 5.55% in November. The latest inflation print is above RBI's medium-term target of 4%. In the latest monetary policy, RBI governor Shaktikanta Das revealed that the weighted average lending rate (WALR) on fresh rupee loans rose by 199 basis points (bps) while that on outstanding loans rose by 112 bps during the current tightening cycle (May 2022 - October 2023).

Hence, the above measures in the interim Budget 2024 will be a big boost for home loan EMIs.