The Housing Ministry has unveiled a series of incentives for first-time homebuyers in the low and middle income segments, including potential tax breaks, price caps, and interest rate freezes. Additionally, it has proposed a one-time debt-restructuring scheme for real estate developers.
Benefits for First-Time Buyers
The government's focus is on benefiting urban lower income groups and increasing the supply of affordable housing. The ministry, headed by Kumari Selja, has suggested to the Prime Minister's Office that the government should promote the construction of housing units between 1,000-1,200 square feet, with a maximum cost of Rs 1,000 per square foot.
For individuals seeking housing loans, the ministry has proposed an additional deduction of Rs 50,000 under section 80C of the Income Tax Act, on top of the existing Rs 100,000 deduction. This benefit would be applicable only to loans taken for the first house and would be available for the next two fiscal years if approved.
Interest Rate Caps
The ministry has also recommended that for loans up to Rs 7.5 lakh, taken for houses measuring 400-1,000 square feet, the interest rate should be maintained at 8%. The government may direct the National Housing Bank and HUDCO to provide a refinance window to ensure this rate if banks do not lower their interest rates.
Debt Restructuring for Developers
For real estate developers and builders, the ministry has proposed a one-time debt-restructuring scheme, a longstanding demand of the real estate sector. The government might request the Reserve Bank of India (RBI) to implement a restructured debt scheme for a one-year period, similar to what was done for the manufacturing sector.
Bridging the Housing Gap
To address the housing shortage for lower and middle income groups, the ministry suggested restoring the income tax deduction under section 80(1)B of the Income Tax Act, which provides a 100% profit exemption for building residential projects for LIG/MIG houses. This benefit would be available for two years but with a stipulation that projects built under this concession should not include houses larger than 1,500 square feet and must consist of at least 15% homes below 260 square feet.
“This would encourage construction for the targeted beneficiaries by those builders who have land already available,” said an official.
FDI in Integrated Townships
The package could also include permission for 100% Foreign Direct Investment (FDI) under the automatic route for integrated township projects up to 5 acres. Such projects would require at least 15% of the houses to be for EWS and 10% for LIG/MIG with carpet areas ranging from 400 to 1,000 square feet.