Budget wish list: Mortgage companies bat for tax holiday for affordable housing projects

Mumbai: Housing finance companies (HFCs) have urged the government to revive fiscal and regulatory incentives in the Union budget for 2026-27 to revive stalled supply in the affordable housing segment, including a four-year tax holiday and higher floor space index (FSI) for developers building homes for economically weaker section (EWS) and low-income group (LIG) households.

Under the first Pradhan Mantri Awas Yojana (PMAY), developers were eligible for a 100% income tax exemption on profits from approved affordable housing projects. The scheme ended in March 2022 and the incentive was not carried forward under PMAY 2.0, prompting mortgage lenders to seek its reintroduction.

"The tax exemption under PMAY 1.0 played a critical role in improving project viability. Without similar incentives, developers are unable to make the numbers work in affordable housing," said an official, who did nor wish to be identified.


Builders across India have significantly scaled back affordable housing construction over the past few years as rising land prices, higher costs of cement, steel and labour, and tighter financing conditions have squeezed already thin margins. Delays in approvals and the withdrawal of government incentives have further weakened the economics of such projects, pushing developers to shift focus towards mid-income and premium housing segments where pricing power is stronger and cash flows are more predictable. As a result, new supply in affordable housing has slowed sharply despite sustained demand from first-time homebuyers.

"A large section of homebuyers is increasingly being priced out of affordable housing as project costs have surged while incomes have remained largely stagnant," the chief executive of a housing finance company said on condition of anonymity. "With loan tenures capped at around 30 years, developers will have to price projects more realistically to restore affordability and improve buyers' purchasing power."