In its move to lift the sentiments of the housing market, and giving relief to households affected by the economic slowdown, the urban development ministry is pushing a proposal to double the income tax benefits on home loan interest payout to Rs3 lakh.
Urban development minister S Jaipal Reddy raised the demand in a pre-budget meeting with finance minister Pranab Mukherjee on Tuesday saying that income tax concessions would boost the recession-hit realty sector.
Reddy also calls for tripling the exemption on payment of the principal amount, reducing interest rates for houses up to Rs30 lakh, and raising the income tax exemption limit on rental income to 50 per cent from the current 30 per cent.
Currently, taxpayers taking housing loans are eligible for I-T exemption on interest payment of up to Rs1.5 lakh every year. Along with this, the repayment of principal amount up to Rs1 lakh is part of investments eligible for benefit under Section 80(C) of the Income Tax Act.
"It was a pre-budget meeting and we discussed budgetary issues," Reddy said after the meeting.
"The real estate is facing a crisis and so we have proposed a lower interest rate to boost demand. The interest rate cut will motivate more home buyers," Reddy said.
"We should make arrangements for giving loans at 6.5 per cent interest for houses in the below Rs5 lakh category," the minister added.
The housing sector is on top of the Manmohan Singh government's agenda considering the huge demand-supply gap in cities and the sector's potential in generating employment.
Reddy also demanded that the real estate sector should be treated in line with other industries, particularly lending norms like interest rate and risk perception for project construction finance.
The housing sector in the country has been hit hard by falling demand following a rise in interest rates. Besides lowering of home loan interest rates, the realty sector has been demanding more sops to stimulate the decline in demand.
At present, interest rates vary from 9.25 per cent to 10.25 per cent for loans up to Rs30 lakh for new customers.
SBI, the country's largest lender, had introduced a special scheme of providing home loans at 8 per cent interest rate in February this year. (See: SBI extends cheap loan scheme till 30 September).
Under the scheme, which was earlier valid till the end of April, the bank had frozen interest rate on new home loans at 8 per cent during the first year.
"There has been an excellent response to the schemes and customers have taken to it in a big way. Hence, our decision is to extend the schemes up to 30 September," SBI chief general manager, personal banking, P Nandakumaran, said while introducing the new programme in April.