The government extends tax reliefs on affordable housing units and safe harbour limit that it provided earlier
First-time homebuyers of affordable housing will get tax deduction up to ₹1.5 lakh on home loan interest
In a further boost to the government’s ‘housing for all’ initiative, finance minister Nirmala Sitharaman in the Union Budget for financial year 2021-22 extended the tax relief for first-time homebuyers of affordable housing units. The tax relief for homebuyers and developers buying or selling below the circle rate by up to 20% has also been extended and will be applicable from assessment year 2021-22. The FM called it the safe harbour limit.
In Budget 2019, the government had provided an additional income tax deduction of up to ₹1.5 lakh for home loans to purchase an affordable housing unit (below ₹45 lakh). This provision allows deduction to first-time homebuyers, in respect of interest on home loan. Sitharaman on Monday extended the eligibility of this tax deduction till 31 March 2022. Last year this was extended by a year to March 2021.
“This is a good budget for the affordable housing sector. The extension of tax holiday for affordable housing by one more year will encourage more developers to invest in this sector," said Ramesh Nair, real estate thought leader and former CEO of JLL India.
According to experts, the steps are expected to keep the demand for affordable housing buoyant in 2021.
To further incentivize homebuyers and real estate developers, the government has extended the period for increase in the safe harbour limit from 10% to 20% for the sale of residential units. Basically, a homebuyer will not have to pay additional tax if the actual transaction value is below the circle rate by up to 20%. “If a buyer purchases a property below the circle rate, and if the difference does not exceed 20%, there will be no tax implications on him. It is good for the housing market as even if a few deals happen below circle rates, there will be no penalty on either the buyer or seller," said Anuj Puri, chairman, ANAROCK Property Consultants Pvt. Ltd.
The relief will only be available on properties valued up to ₹2 crore and those bought in the primary market from a developer.
Budget 2021 also proposed to make dividend payment to REITs and InvITs exempt from tax deducted at source (TDS). REITs and InvITs are vehicles that allow developers to monetize revenue-generating real estate and infrastructure assets. As per regulations, 90% of the income generated under REITs or InvITs has to be distributed back to investors in the form of dividends.