More power to spend

In­di­ans will now be left with more dis­pos­able in­come, but would it be enough for them to buy a house or ser­vice their home loans?

HT Estates - - FRONT PAGE - Van­dana Ram­nani

Does the maiden Budget pre­sented by fi­nance min­is­ter Arun Jait­ley mo­ti­vate you to buy a house? Prob­a­bly it will if you’re a first-time home­buyer sit­ting on the fence for a cou­ple of years, un­de­cided on how to bear the bur­den of high in­fla­tion or ser­vice a loan in an ev­er­in­creas­ing in­ter­est rate regime.

For the record, some of the tax ben­e­fits pro­posed in the budget in­clude rais­ing of tax ex­emp­tion limit from ₹ 2 lakh to ₹ 2.5 lakh. This will go a long way in en­hanc­ing house­hold sav­ings. Ad­di­tion­ally, the limit on home loan in­ter­est has been in­creased from ₹ 1.5 lakh to ₹ 2 lakh and third, the ex­emp­tion limit for in­vest­ments by in­di­vid­u­als in fi­nan­cial in­stru­ments has been in­creased from ₹ 1 lakh to ₹ 1.5 lakh. There­fore, in­creased sav­ings cou­pled with an in­creased tax ben­e­fit may go a long way in mo­ti­vat­ing home­buy­ers to pur­chase a house.

Ac­cord­ing to Neeraj Bansal, part­ner and head of real es­tate and con­struc­tion, KPMG in In­dia, avail­abil­ity of a cheaper loan cou­pled with in­crease in in­come tax de­duc­tion on hous­ing loan in­ter­est by ₹ 50,000 should boost de­mand and cer­tainly help re­vive the sale of hous­ing units in the coun­try. The hous­ing sec­tor could wit­ness a mod­er­ate surge in its quar­terly ab­sorp­tion rate of about 40,000-50,000 units in the short term. How­ever, cer­tain fac­tors such as high in­ven­tory of un­sold flats (about 3 lakh units), high property prices and high in­ter­est rates would keep a check on the sales. The mar­ginal in­crease in dis­pos­able in­come in the hands of in­di­vid­u­als as ba­sic ex­emp­tion lim­its and de­duc­tion un­der Sec­tion 80C (raised by ₹ 50,000 each), should fur­ther en­hance flow of funds into the sec­tor from in­di­vid­ual sav­ings.

This is what the cu­mu­la­tive ef­fect on your sav­ings will be like (See box). If you earn ₹ 9 lakh a year and are avail­ing of all the three ma­jor ex­emp­tions, you will end up sav­ing about ₹ 20,600 on an an­nual ba­sis. You will now not only have more money at your dis­posal, you will also be el­i­gi­ble for a higher home loan as your to­tal tax payable will now be ₹ 41,200 com­pared to ₹ 61,800 un­der the pre­vi­ous tax regime.

En­hance­ment in the ex­emp­tion limit cou­pled with in­crease in the ex­emp­tion un­der Sec­tion 80C and home loan in­ter­est will in­crease spend­ing power in the hands of in­di­vid­u­als and also make home loans more tax ef­fec­tive. These mea­sures should boost de­mand in the hous­ing sec­tor and en­cour­age in­di­vid­u­als to chan­nelise their sav­ings/ in­crease in per­sonal dis­pos­able in­come to­wards own­ing their own house rather than spend­ing in non-pro­duc­tive as­sets such as gold etc, adds Gau­rav Karnik, tax part­ner-real es­tate prac­tice, Ernst and Young.

Ge­tam­ber Anand, pres­i­dent ( elect), CREDAI and CMD, ATS Group, says that the sec­tor ap­pre­ci­ates the budget, es­pe­cially the in­crease in the limit of the in­come tax re­bate on hous­ing from ₹ 1.5 lakh to ₹ 2 lakh...All in all, it’s a good budget and we’ll give it a 7 on 10 and hope to in­ter­act more and more with the fi­nance min­is­ter in the di­rec­tion of achiev­ing the goal of hous­ing to all by 2022.”

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