income tax
The recent budget includes two notable proposals aimed at extending tax benefits for homebuyers. These initiatives focus on enhancing the availability of deductions related to home loans and rationalizing the taxation of disparities between stamp duty and agreement values in real estate transactions.
Under Section 80EEA, individuals have the right to claim an interest deduction of up to Rs. 1.50 lakh on home loans secured from financial institutions for purchasing residential properties valued up to Rs. 45 lakhs. Initially, this deduction was applicable only for loans sanctioned between 1st April 2019 and 31st March 2021. However, in response to ongoing challenges in the real estate sector, the government has proposed extending this deadline to include loans sanctioned by 31st March 2022.
To qualify for this deduction, buyers must not own any other residential property as of the loan sanction date. While Section 24(b) allows for deductions on interest from borrowed funds, it requires possession or completion of construction before the deduction can be claimed. Conversely, Section 80EEA permits claims on interest payments even during the construction period.
Homebuyers often encounter restrictions under Section 24(b), including a limit of Rs. 2 lakhs for self-occupied properties and additional constraints on loss claims against other income. Given the substantial home loans required in major cities, many buyers struggle to effectively utilize the interest amortization. It is worth noting that deductions under Section 80EEA and Section 24(b) can be claimed concurrently, provided they do not pertain to the same amount, making this proposal advantageous for homeowners.
When an immovable property is sold for an amount below its stamp duty valuation, the difference is taxable for both the seller and the buyer. To mitigate tax burdens for minor discrepancies, the government introduced a tolerance limit of 5% in 2013, which was subsequently raised to 10% in the previous budget. Due to the significant downturn in the real estate market during the pandemic, the government has now proposed increasing this tolerance limit to 20%.
This adjusted tolerance applies to transactions where the property’s agreement value does not exceed Rs. 2 crores and is directly purchased from the developer as the first allotment during the period from 12th November 2020 to 31st March 2021. Furthermore, to offer similar relief to buyers, the budget also suggests raising the tolerance limit to 20% for these specific residential properties.
However, concerns arise regarding the selective nature of this higher tolerance limit, which appears to benefit developers and negotiations conducted during this designated period. It raises questions about whether the real estate market's corrections have solely affected properties held by developers, thus undermining the genuine homeownership experience. The selective nature of this proposal could inadvertently encourage illicit financial practices in property transactions due to the disparity in treatment between different property sales.
It is argued that the higher tolerance limit should be uniformly applied across all property transactions, regardless of value, especially considering that many stamp duty valuations have remained unchanged while market prices have decreased over the same period.
The proposed budget initiatives serve to extend essential benefits to homebuyers and adjust tax implications related to real estate transactions. While these measures provide immediate relief, a broader application may be necessary to ensure equitable treatment for all stakeholders in the property market.