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Tax incentives for home buyers
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The raising of deduction limit on principal and interest repayment will encourage home buying, while the green signal to REITs is a positive for investors.
The corporate executive, who recently bought a flat in Greater Noida West, will now be able to avail of a deduction of `2 lakh on interest repayment under Section 24 of the Income Tax Act, instead of the earlier limit of `1.5 lakh.
The enhancement of the Section 80C limit is another positive for home loan borrowers, who will be able to use the increased limit--from `1 lakh to `1.5 lakh--to get deduction on principal repayment. Such borrow ers earlier paid huge EMIs but were unable to take advantage of the deduction on principal repayment as their Section 80C limit would be used up by a number of other instruments: insurance premium, PPF, ELSS, and so on. The increase in these two deduction limits by `50,000 each will act as an incentive for home buyers.
The exact benefit that borrowers avail of will depend on their tax bracket. According to calculations from EY, the total tax saving for home loan borrowers due to these two changes, if their gross total income ranges from `9-15 lakh, will be from `20,60030,900 (see table). Couples can enhance their benefit by buying the house in joint names, taking the loan jointly, and making the down payment contribution and EMI re payments jointly. REITs to become a reality
Another benefit for retail investors was the granting of pass through status to REITs. This is the single most consequential reform witnessed by the real estate sector in recent times." In October 2013, Sebi had issued draft norms for the introduction of REITs. Since then they had remained stuck due to the lack of pass-through status. In this Budget, the finance minister has assured that REITs will not be doubly taxed. REITs allow investors with only a small amount of money to invest in real estate. Investing in REITs is less risky than in under-construction properties.
Fund flow to realty may improve
The economic slowdown has led to severe fund crunch within the realty sector, leading to stalled projects and delays in possession.
The Budget has tried to facilitate the flow of funds to the sector. An important measure was the easing of FDI norms. The minimum built-up requirement for FDI in the real estate sector was reduced from 50,000 sq m to 20,000 sq m. "This lowering of the threshold size of development may encourage FDI investment in smaller inner city developments
The lowering of the threshold level of FDI from $10 million to $5 million may also lead to more investments.
Finally, REITs are set to emerge as an important new source of funding. These will provide access to developers to a major source of funding and also offer them an avenue to exit from their investments in commercial offices.
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