Interim Budget & incentives for real estate sector

Last Updated: 24 Sep 2024

The real estate sector saw some slowdown in demand for affordable and middle income housing segments in the past 2 years. This happened because of successive increases in interest rates by RBI. These increases increased the cost of borrowing for home loan borrowers. The sector now expects the interim budget to provide some incentives to give a boost to demand for affordable and middle income housing.

Increase tax deductions

One expectation is that the cap on tax deduction for principal repayment towards a home loan be increased. Currently this cap is Rs 1,50,000. A home loan borrower can deduct up to Rs 1,50,000, that she paid for principal repayment towards a home loan, from her taxable income. Another expectation is that the cap on tax deduction allowed on interest rate paid towards home loans be increased further. Currently this cap, under Section 24 of Income Tax Act, stands at Rs 2 lakhs. Interest payments of up to Rs 2 lakh annually, made on home loans, can be deducted from taxable income.

Increase the cap in affordable housing definition

Another expectation of the sector is that the current cap of Rs 45 lakh in the definition of affordable housing be increased. The sector also wants infrastructure status for it. Granting of infrastructure status will make access to financing for the sector easier.

Cutting down of interest rates will be a boost for the sector

RBI is likely to start cutting down interest rates from the second half of 2024. So real estate sector is expecting an increase in demand for affordable and middle – income housing in the second half of 2024. If the Interim Budget in February and the Full-Year Budget in July provide further incentives for affordable and middle-income housing, the sector may see a major boost in demand. Given the need for housing in India, the Government may consider giving incentives for the real estate sector. But there is also a chance that it may wait till the full-year budget in July for announcing these incentives.