Given the current economic stagnation plaguing each sector of the economy, Union Budget 2021 was one of the most anticipated events of this financial year for taxpayers.
In an attempt to move the country out of the pandemic introduced slowdown, the Finance Minister introduced several tax exemptions and holidays for every segment including those for home buyers and developers.
This comes after a report that announces improvement of sales in the affordable housing segment since July 2020, following the lifting of stringent country-wise lockdown. A 150% Q-o-Q growth, between July and September 2020, indicates that the real estate sector is recovering at a rapid pace.
Such growth can easily be accredited to the availability of finance tools like home loans, which make it easier for individuals to purchase a residential property. Tax reliefs introduced this year are expected to encourage more individuals to avail loans and purchase houses, thereby bolstering this growth even further.
Reforms introduced in Budget 2021 to benefit home buyers
In Union Budget 2021, the government laid down a few proposals to extend the tax benefits available to home buyers. These proposals are discussed in brief below:
Income tax exemptions
For a consecutive year, budget reforms were focused on easing the financial burden of new and existing homebuyers under the affordable housing regime. These new reforms are incredibly beneficial for low- and middle-income groups who can enjoy tax exemptions for another year.
Essentially, affordable rental housing complexes (ARHCs) refers to properties priced under Rs.45 lakh as per stamp duty valuation.
Presently, an individual can claim the following home loan tax benefits:
Under Section 80C, taxpayers can claim up to Rs.1.5 lakh on repaying the principal component.
Under Section 24B, one can claim up to Rs.2 lakh on repaying the accrual and home loan interest component.
Section 80EE allows a deduction of Rs.50000 on interest component if the loan was availed in FY2016-17.
If you are not a beneficiary under Section 80EE, Section 80EEA allows a deduction of Rs.1.5 lakh on repaying the interest component.
However, Section 80EEA is only valid for the houses included under the ARHC project and valued under Rs.45 lakh. Moreover, this deduction can only be claimed if the home loan was sanctioned between April 1st, 2019, and March 31st, 2021.
The Union Budget extended this date by a year, until March 31st, 2022. Further, this benefit on home loan
is also available up and above deductions under Section 24B, so you can enjoy the total tax benefits of Rs.3.5 lakh.
Additionally, you can claim the deduction even during the construction period. This extension is a welcome proposal considering the slowdown amid a global economic crisis. However, beneficiaries cannot own another property on the date of loan sanction.
So, make sure to enquire thoroughly about various ways of saving tax when you take a home loan
to maximise retrenchments throughout the tenor.
Extension of tax holiday
A tax holiday was announced in an attempt to maintain the supply of low-cost houses. An excerpt from the Finance Minister’s speech states that - affordable housing projects can opt for a tax holiday for another year until March 31st, 2022.
The budget document also states that a 100% deduction of profits and gains from real estate sector development can be claimed under Section 80-IBA of the Income Tax act. Additionally, dividends paid towards Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (IIT) are exempt from TDS.
This extension essentially makes purchasing a new home cheaper, especially for first-time homebuyers. After calculating upcoming liabilities, you can approach a lender for home loans.
Further, look for an HFC who extends pre-approved offers to expedite the loan application process. These offers with minimum documentation requirements can be availed on products like home loan and loan against property. You can check your pre-approved offer by entering a few essential details like name and contact number.
Rationalisation of taxation difference between stamp duty and agreement value
Essentially, if a person sells an immovable property below stamp duty valuation, the difference will be charged on his/her part. At the same time, the buyer is also charged for this difference.
With an attempt to boost the real estate sector, the government also waived taxation on the difference between stamp duty and agreement value from 10% to 20%. This waiver is applicable on sale of residential units by builders between November 12th, 2020, and June 30th, 2021.
Transactions that qualify for this waiver are where the agreement value does not cross Rs.2 crore. So, if you are buying or selling a property under this value and the difference between stamp duty and agreement value does not cross 20%, you are eligible for this taxation waiver.
Therefore, make sure to enquire about stamp duty and registration charges levied on a home loan to prevent adding on liabilities during the property purchase.
The Union Budget benefits along with the recent repo rate cuts, should be enticing for prospective homebuyers, who can approach financial institutions for home loans at attractive interest rates. Consequently, the real estate sector, on the whole, should see revived consumption, therefore driving the economy forward.