Budget 2004: Housing

Tax exemption on interest on housing loans maintained at Rs 150,000 per year.

Tax breaks on specified housing projects have been extended till 2005.

Reduction in the interest rates on all small savings schemes by 1%.

Reduction in the small savings interest rates would enable housing finance companies and financial institutions to lower their deposit rates, which already stands on a higher side (compared to cost of funds for banks). Consequently, these financial entities would be able to improve their interest spread to an extent if they do not reduce the lending rates proportionately.

Incentives of housing loans remaining unchanged will ensure that housing loans will continue to remain in favour of the middle class. A healthy growth that has been seen in the past is likely to continue.

Allocation of Rs 17.1 bn to the housing sector for providing rural housing finance.

Government infuses further equity of Rs 3.5 bn in HUDCO.

Increase the tax exemption limit on principal outgo of a housing loan from Rs 10,000 to Rs 20,000.

The tax incentives offered on housing loans in the previous budget have been extended by another two years till FY2003.

Enhancement of limit for deduction of interest paid on housing loans under section 24(2), from the present Rs 100,000 to Rs 150,000.

In respect of repairs of, and collection of rent from the property, amount of 30% (from the current 25%) of the annual value of house property is allowed as a deduction u/s 24(1)(i).

FII limit increased to 49% from the current 40%.

Automatic foreign direct investment in non-banking finance companies allowed up to 100%.

Deduction for interest payable on housing loans for self-occupied houses even where such houses are acquired or constructed after March 31, 2003.

Capital gains exemption is provided in section 54EC of the Income-tax Act to bonds issued by the National Housing Bank.

The NHB will launch a Mortgage Credit Guarantee Scheme.

Progressively the government has increased the tax exemption on interest paid for housing loans (exemption increased from Rs 75,000 to Rs 150,000 in the FY02-03 budget). This has prompted many middle class families to opt for housing loans. Progressive cut is small savings rate to the tune of 1.5-2% has triggered softening interest rates. This has led to falling interest rates, which has further given a fillip to the housing loans market. Further the Mortgage Credit Guarantee Scheme was provided to all housing loans in the 2002-03 budget, thereby fully protecting lenders (housing finance companies) against default.