Every year, the last working day of February meant only one thing: the budget announcement. But this year, things have changed. The Finance Ministry decided to present the budget on 1st February. With the big day coming up, there has been huge speculation about the impact of the budget on various sectors. Here is a look at how Budget 2017 could influence the real estate sector.

1) Tax incentives for housing

The real estate sector has taken a huge hit post demonetisation. The demand for housing dropped across all major cities in the country. Analysts are calling for high tax incentives on home loans in the upcoming budget. Such incentives would boost the demand for housing. It would ensure an increase in demand. This, in turn, would help the faltering real estate sector to rise again.

2) Deduction limit for interest on home loans

An increase in the deduction limit can be beneficial for homeowners. Under Section 24 of the Income Tax Act, you can avail a tax exemption on the interest paid on home loans. The current deduction limit for this is Rs.2 lakh. But the government may hike this limit by Rs.50,000 to Rs.2.5 lakh, as per media reports. The aim in doing this would be to boost demand in the housing sector. This would help relieve some of the burden of EMI payments on homeowners.

3) Separate cap for repayment of principal

The government could come up with a separate cap for repayment of the principal on home loans. At present, principal repayment falls under Section 80C of the Income Tax. The maximum amount eligible for deduction is Rs.1.5 lakh.

But other deductions also come under this category. This includes PPF, ELSS, insurance premiums, and so on. There is a need to encourage property investments. So, the government could consider creating a new cap for home loan repayments.

4) Reduction of service tax

Home buyers currently have to deal with a lot of taxes. These include service tax, VAT, and stamp duty when they buy flats. Analysts hope that the upcoming budget will do away with these multiple taxes. Introducing the goods and services tax (GST) in their place would help. This way, the impact of the tax burden on home buyers may reduce considerably.

5) Rate cuts benefit

In the wake of demonetisation, banks have seen a great influx of cash. Hence, the government could direct the banks to cut interest rates in the near future. This would result in a big benefit for home buyers. Any decrease in the rates will have a direct impact on the amount of EMI paid by customers. You may witness an increase in the demand for housing if banks pass on the benefits of rate cuts to customers.

The bottom line

The Indian government has introduced initiatives such as ‘Housing for All by 2022’. These steps are propelling the housing sector forward. Experts believe the upcoming budget will turn the tide favourably towards home buyers. Right now, all we can do is wait and watch.