After the Budget-2020, however, while some were happy about the announcements, others felt the annual fiscal exercise failed to meet their expectations. It must be noted here that analysing the Budget-2020 from the real estate sector’s point of view must include perspectives of the new homebuyers, the existing buyer, the end-user and the investors. So, let’s discuss some of the key takeaways for the real estate sector from Budget 2020.
The last date to avail 80EEA tax benefit extended by one year
In Budget-2019, the central government, in line with its push for affordable housing, introduced an additional tax benefit of up to Rs1.5 lakh under Section 80EEA against home loan interest payment for a property valued not more than Rs 45 lakh as per the stamp duty calculations. The last date to avail of this benefit was March 31, 2020, but the government decided to extend this deadline by another year in its latest Budget. This is a welcome step as the real estate sector has seen a slump in demand in the previous year which has resulted in mounting inventories for the developers. This announcement would encourage aspiring homebuyers to take the plunge in 2020 which, in turn, could help solve the demand problem.
Now, many get confused over tax deductions available under Section 24B and Section 80EEA. While both the benefits apply to the home loan interest payment, the deduction thresholds available under Section 24B and Section 80EEA are Rs2 lakh and Rs1.5 lakh, respectively. In fact, eligible homeowners can avail 80EEA benefit over and above 24B benefit, which is very significant during the initial years of a home loan when the interest component is the highest. Also, homeowners can claim tax deduction up to Rs1.5 lakh on principal repayment available under Section 80C. However, the tax benefit under Section 80EEA can be availed only by first-time homebuyers while Section 24B doesn’t have any such riders. Secondly, 80EEA benefit is only available to those first-time homeowners whose property’s carpet area doesn’t exceed 645 sft if it’s located in a metro and 968 sft, if it’s located in any other place. Again, Section 24B doesn’t have any such restrictions. Lastly, tax benefit under Section 80EEA can be claimed during the construction period of the property whereas you can't claim benefit under Section 24B till the completion of the project.
Announcement on transaction value below the circle rates
Amid a severe slowdown in the realty market, homebuyers and sellers continued to be taxed on the difference between the retail rate and the circle rate, where such rate was greater than five per cent. However, in Budget 2020, FM Nirmal Sitharaman proposed to increase the difference limit from 5% to 10% of the circle rate. There are many realty locations where property rates are much lower than their prevailing circle rates. Now, sellers will be able to sell their property at a discount of up to 10 per cent from the circle rate, and thus, clear their inventory which they’re keen to get rid of. The buyers can now negotiate with the seller to give them a discount over the prevailing circle rates. Therefore, this move by the government is likely to increase the demand and supply of the properties.
New tax system introduced
Perhaps the most significant announcement of Budget-2020 was the government’s proposal to introduce a new, optional tax regime from 2020-21 financial year where taxpayers will be able to avail of discounted slab rates and reduce their tax outgo by forgoing a majority of tax deduction benefits and allowances. They can, of course, choose to remain in the existing tax system and continue benefiting from the prevailing tax concessions.
However, the homeowners who decide to adopt the new tax system will have to let go of a host of critical tax-deduction benefits available under Section 80C, 24B, 80EE or 80EEA, which can actually increase their tax liability despite the lower slab rates of the new system. As such, homeowners, and in fact all taxpayers, should compute their tax liability and make an informed decision about which system will help them reduce their tax burden. They should also consider the fact that a home loan is considered one of the biggest tax-saving instruments with its range of tax-deduction benefits.
However, if your gross income is very high, or you’re someone who is not planning to take a home loan or wants to invest in a commercial property, you might benefit more by going with the new tax slab. All said and done, the new tax regime should not discourage you from investing and insuring just because there are no tax incentives available on them. It should allow you to invest and insure freely according to your financial goals and responsibilities without getting pressurised by tax-saving goals.
PMAY CLSS deadline not extended for MIG1 and MIG2 categories
The credit-linked subsidy scheme (CLSS) available under the Pradhan Mantri Awas Yojana-Urban has been a big enabler for first-time homebuyers as it allows them an upfront interest subsidy of up to Rs2.67 lakh against the interest component of their home loans. This scheme is implemented under four categories: Economically Weaker Sections (EWS), Lower Income Group (LIG), Middle Income Group-1 (MIG1) and Middle Income Group-2 (MIG2) with a different set of eligibility requirements pertaining to annual household income and property carpet size. And while the EWS and LIG categories can avail of the CLSS benefits until March 31, 2022, the other two categories-- MIG 1 and MIG 2 -- can do so only if their home loan gets sanctioned before March 31, 2020. As such, there were expectations that the government would extend the deadline for MIG-1 and MIG-2 categories by two years to be at par with the first two categories. However, the finance minister Nirmala made no such announcement in her Budget 2020 speech. As such, if you fall under the MIG-1 or MIG-2 categories and are planning to take a home loan, you might want to get the loan sanctioned before March 31, 2020, to avail the interest subsidy.
In conclusion, the mounting inventories of affordable properties and the latest Budget announcement about discounts on circle rates provide aspiring homebuyers more leverage to negotiate the prices for budget houses. And if they indeed decide to take the plunge quickly, they can avail additional tax deduction benefit under Section 80EEA to minimise their tax outgo.
The author is CEO, BankBazaar.com