#Budget2016: Financial Shield Against Project Delays May Bring Some Cheer For Home Buyers
The 2016 Union Budget is round the corner. The real estate sector, which has been facing tough times in terms of growing inventories and lacklustre sales, is hoping for some good news from Finance Minister Arun Jaitley when he presents the Budget on February 29.
Home buyers have a lot of expectations from the Budget and one of the wishes is to get financial shield from incessant project delays. These regular delays in giving possession has made many home buyers approach the judiciary. Between the ready-to-move-in apartment and an under-construction unit, the former is usually more expensive. So, people tend to prefer under-construction projects because they go easy on pocket. Although it has the advantage of lower cost, the disadvantage of restricted tax deduction claims also comes into picture.
On purchase of an under-construction property, a home buyer can claim deduction under Section 80C of the Income Tax Act against the principal repayment, which has an overall limit of Rs 1.5 lakh. Further, you can claim up to Rs 2 lakh on the interest paid under Section 24(b) for a self-acquired house within three years. The benefits reduce to Rs 30,000, if the developer delays the construction beyond this. If there is a delay in possession, a home buyer usually has to pay the home loan equated monthly installment (EMI) and the rent of the house they are staying in.
J C Sharma, Vice-Chairman and Managing Director, Sobha Limited, said, “The benefits from a series of repo rate cut by the Reserve Bank of India have not been passed on to the customers to a large extent, leaving buyers with lesser disposable income. The present tax exemption of Rs 2 lakh on home loan interest payment for an under-construction property is relatively small for buyers in Tier-I cities such as Mumbai and Delhi, where most of the properties are priced over Rs 1 crore. Moreover, buyers can claim this benefit only if the construction is completed within three years, thereafter the exemption is reduced to Rs 30,000. Any construction delay hits hard on the first time buyers' budget who additionally have to pay rent. Tax exemption on interest should be relaxed further and consequently adjusted based on inflation. All these relaxations will give some relief to the buyers and improve the sentiments.”
Anuj Puri, Chairman and Country Head, JLL India, writes that instead of allowing home buyers the tax benefits post-possession, the Union Budget should make a provision that allows these from the time they start paying interest on housing loans. This will ease their monetary burden considerably and increase the velocity of home loan disbursements.
“Similarly, if an under-construction property is purchased from capital gains, its construction must be completed within three years of its sale to avail of the exemption. There can be delays by developer in such cases too. The construction timeline should be extended from the current three years to five years,” Puri wrote.