FIRST TAKE - REAL GAINS IN BUDGET


FIRST TAKE - REAL GAINS IN BUDGET


 
Union Budget 2016-17 has a number of measures to boost the real estate sector. Finance minister Arun Jaitley allowed an additional deduction of Rs 50,000 from taxable in come of homebuyers, if they buy their first house--costing up to Rs 50 lakh-by taking a home loan of up to Rs 35 lakh. At present, under Section 24 of the IT Act, one can avail a deduction up to Rs 2 lakh from taxable income for the interest payment on home loan taken to buy a house. The additional Rs 0,000 deduction will increase the limt to Rs 2,50,000, provided all the above onditions are fulfilled.

If the buyer takes a home loan of Rs 5 lakh, his EMI at 9% interest rate for 20-year period will be Rs 31,490. In he first year, he will pay a total mount of Rs 3,77,880. Out of this, the interest element would be Rs 3,12,340 and the rest--Rs 65,540--will be adjusted against the principal. Therefore, out of Rs 3,12,340 that he paid as interest payment, Rs 2,50,000 will be deducted from his taxable income.This will help him save Rs 75,000 in tax if his income is in the 30% tax slab, or Rs 50,000, if in the 20% slab. Besides, he can also avail the deduction under Section 80C for repayment of the principal. In this case, his principal repayment is Rs 65,540, and he will save Rs 19,662 if his income falls in the 30% bracket, or Rs 13,108 if his income is in the 20% slab.

Therefore, the total tax savings will be Rs 94,662--or Rs 63,108--depending on his income. This will bring down his effective interest rate to 6.22% if his income is in the 30% bracket, or to 7.12% if in the 20% bracket, from 9%.

“Overall, it is a very positive Budget for the real estate sector and Credai is certain that this will spur the market and induce homebuyers, who have been waiting a long time for some special incentive, to actually be able to buy a house,“ Getamber Anand, president of realtors' apex body Credai, said.

“The finance minister has taken the right steps to boost housing sector and ensure that `Housing for all by 2022' becomes reality,“ Getamber Anand said.

In another important decision, the government has increased the time limit from 3 years to 5 years to take the benefit under Section 24. Under this section, a homebuyer can avail the deduction of Rs 2,00,000 under Section 24 of IT Act from taxable income for interest payment on home loan, provided he gets the possession of the house within 3 years of taking the loan to buy the house. Now, the time limit has increased to 5 years. The Budget has also paved the way for setting up of Real Estate Investment Trusts (REITs).“The most encouraging announcement has been the exemption of REITs from Dividend Distribution Tax (DDT),“ CBRE chief Anshuman Magazine said.

In order to make affordable housing sector attractive for private developers, the Budget has exempted the profit earned on a project to develop small-size houses of up to 300 sq metres in metros and 600 sq metres in non-metro areas. “The finance minister's announcement of 100% deduction in tax on profits from affordable housing would increase the developers' focus on the segment that has been largely ignored owing to business viability issues,“ Sanjay Dutt, MD of Cushman & Wakefield India, said.

Rajeev Talwar, CEO of DLF, India's largest realty firm, said: “Very good Budget for the real estate. Tax incentives have been given to first-home buyers as well as for the development of housing projects. This will boost both housing demand and supply significantly--90% of the housing demand is in the affordable segment.“

 

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